Thread by @lund_dane

Early today, Solend announced that it would hold its first DAO vote to seek emergency approval to seize the assets of its largest user.

Within hours, Solend claimed it had approval.

tldr: Solend's actions expose a shortcoming of a centralized team, not that of a DAOs. 🧵

Background:

Solend promotes itself as "the autonomous interest rate machine for lending on Solana."

Solend's largest user held a risky position. The wallet had deposited 5.7mm Sol and borrowed 108mm in stablecoins. Sol liquidation price of $22.3 (~31% drop from current).

Solend's core team attempted to reach the owner of the wallet to encourage them to reduce risk beginning on June 13.

Yesterday, the team attempted to reach the owner via on-chain message (at 9:35am ET). The message gave the owner 24 hours to respond.

https://twitter.com/solendprotocol/status/1538157790983704576?s=20&t=qLUHyWHhQlZXVohYNtaxtw

~19 hours later, Solend announced its first governance proposal for its "DAO".

The proposal sought to:

1. Increase the margin threshold for accounts > 20% of pool borrows; and

2. Take control of the owner's wallet to initiate OTC liquidation.

tinyurl.com/3z583zd3

The proposal makes no reference to a timeline for voting or a quorum.

Within the first 2 hours, the governance portal was not fully accessible. (tinyurl.com/24bha265).

6 hours after announcing the proposal, Solend declared it passed (tinyurl.com/mrxrmrte).

1.16 million tokens voted. One wallet, accounting for 1.04 million voted in favor (~1.01% of token supply).

Detail from the forum shows that the quorum was set at 1% of supply and had the 1% wallet not voted, a quorum would not have been established. (tinyurl.com/mtw72v7u)

Nothing in Solend's DAO documentation discusses voting, nor does their governance profile on Realm detail procedural rules for the DAO.

Solend's Discord is not clear on the scope or timing of governance. As recent as June 4, a Solend community / BD team member suggested that "steps towards governance" would be taken in the future.

I was not able to find a mention of a plan to launch governance in the near term.

In truth, it appears there is nothing that resembles a DAO in the current design of Solend.

In May, when a user emphasized the importance of decentralization, the same team member indicated that the decisionmaking was intentionally centralized to push for speed.

It is pretty clear that the vote today was not required, from the perspective of code, to take over the whale's wallet to implement a forced liquidation.

At first blush, Solend has a fairly robust set of disclosures on its site, including a discussion of risk factors and an audit.

What is missing is a mention of centralization risk (docs.solend.fi/getting-starte…).

If someone "locks" assets in a smart contract, their reasonable expectation would be that the contract cannot be altered to take possession of their assets.

Having a rushed governance vote does not change the reasonable expectations of a user who reads the documentation.

One question: what if the protocol had been decentralized and the DAO (rather than developer team) had full access to the administrative function that permits the "upgrade" that permits access to locked assets?

This question does not expose the flaw of DAOs, but it shows the need for clear scope of product design.

A user should be on notice that they risk having their assets seized, whether the governing body is a developer team or a DAO.

The Solend vote displays a problem with product design and communication of risks to the end user.

It would be wrong to infer that Solend is an example of DAO failure, as many of the community members expressed their dismay on Twitter and Discord.

A governance system that is developed without clear rules of engagement for the community that holds its first vote on a few hours notice is not a DAO.