Thread by @milesdeutscher

After Celsius and 3AC tanked the market, another concerning event has started to emerge.

With nearly a billion dollars of liquidations on the line, the price of one of crypto's largest L1s is at stake.

🧵: What's happening to $SOL and @solendprotocol, and why you should care.👇

2/ Right now, there are three major liquidations I've got my eye on. $778m worth of positions across $wBTC, $SOL and $ETH.

https://twitter.com/milesdeutscher/status/1538804898044985344?s=20&t=80tvR2pcJBKatgnkuP6fxQ

3/ But the $SOL situation is by far the most intriguing, and has sparked intense debate. Here's a break down of what's occurring: 👇

A $SOL whale deposited $160m on @solendprotocol to borrow $108m.

https://twitter.com/0xrooter/status/1538173610006720512?s=20&t=ckmmApxfN1xL7mNAF8hRQA

4/ As this position creeps closer to liquidation, it began to trigger fears that user funds could be put at risk.

Solana's recent instability lends itself to potential issues amidst a mass liquidation event. Additionally, user funds could be vulnerable due to high slippage.

5/ In response, @solendprotocol decided to reach out to the whale to negotiate a solution. They claimed that:

• The whale will always present a systemic risk to Solend and its users, and
• Letting a liquidation of this size to happen on-chain is extremely risky

6/ But the whale never responded, so Solend issued a proposal which intends to "grant emergency power to temporarily take over the whale's account so the liquidation can be executed OTC."

realms.today/dao/7sf3tcWm58…

7/ The proposal was met with vast public backlash, as many claimed that the intervention directly combats the essence of decentralisation (I would largely agree).

@el33th4xor (founder of $AVAX), @FatManTerra and @Coachkcrypto challenged the proposal.

https://twitter.com/el33th4xor/status/1538532883157204993?s=20&t=Pahho1PKxlnPD9E58i-T5w

8/ @cobie labelled the $SOL situation "comedy", with @cz_binance also seemingly questioning the decision.

https://twitter.com/cobie/status/1538529982804287488?s=20&t=zT-sATGmjFJQs_C3JkPSJA

9/ If we learnt anything from the Celsius and 3AC situations, it's that on-chain transparency is a much-needed component of the crypto financial ecosystem.

This is the exact problem that DeFi is intended to solve.

https://twitter.com/ByzGeneral/status/1538613802299801600?s=20&t=pn5e-nI-Z8CIoMIR6xTrPA

10/ Even @SBF_FTX agrees with this sentiment.

https://twitter.com/SBF_FTX/status/1538451453030825984?s=20&t=_r-1pqtwKBNrltVJCxb0BQ

11/ But despite the backlash to the proposal, 97.5% voted "Yes".

This is where things get interesting. 👀

https://twitter.com/web3isgreat/status/1538548028872826880?s=20&t=1ht6dGKkfTWRvbGM15paiA

12/ It turns out that over 90% of the votes were issued by a single user.

The fate of $270m in user assets are effectively being decided by a single entity.

This is a fundamental flaw in the system, as voting power is decided by your DAO holdings.

https://twitter.com/HsakaTrades/status/1538546664952193024?s=20&t=XjTPvdrCFWKYV47Q_8IQFw

13/ This resulted in further division amongst the community.

@solendprotocol quickly rushed to fix their mistake, by INVALIDATING vote #1, and instead issued a NEW proposal to:

• Invalidate the last proposal
• Increase governance voting time to 1 day

blog.solend.fi/slnd2-invalida…

14/ The voter took to Discord to justify their position.

They claimed that they'd rather salvage "$120m of retail dollar instead of holding up DeFi ethos for some whale that is degenerately gambling.."

https://twitter.com/solendprotocol/status/1538785187558961153?s=20&t=G8Dv_LaMz3Uh24d9QPC8hQ

15/ The decision to invalidate the vote (although I believe it was the right one), raises another important issue:

What's the point of a DAO if proposal outcomes aren't adhered to?

16/ The initial proposal was a) fundamentally flawed, and b) far too easily manipulated by a singular party.

But in addition, cancelling the proposal invalidates the very authority a DAO claims to have.

A doubly whammy of decentralisation degradation.

17/ Despite all this uncertainty, @SBF_FTX declared that "real solutions are coming."

Many accused him of "saving his bags", as the timing of this tweet coincided with $SOL dumping. Until now, SBF has been quiet on the Solana front for months.

https://twitter.com/SBF_FTX/status/1538450026573316097?s=20&t=L5_FpHdCX6SYjfqVLQC6cw

18/ So what does the Solend situation mean for $SOL?

Once again, it highlights the network's centralisation concerns.

Controlling user funds is a big no no, and goes against the essence of decentralisation.

19/ In terms of the implications, this event negatively affects @solendprotocol more so than $SOL itself.

$SOL remains largely unharmed (although I'd still keep my eye on the $22.30 level).

But, it does highlight the increasingly relevant argument of decentralisation.

20/ This is the classic case of need vs want in crypto. What we WANT is decentralisation, but what we NEED (in this case) is user protection.

Striving for a healthy balance between the two is what we need to progress as an industry.

21/ If you enjoyed this thread, please give the 1st tweet a like and retweet. 💙

https://twitter.com/milesdeutscher/status/1538918950909919232?s=20&t=03xzaut7TV1XJibOtxs3tA

22/ UPDATE 1:

The $SOL whale is now in contact with the @solendprotocol team to work on a solution.

https://twitter.com/solendprotocol/status/1539153560478183424

23/ UPDATE 2:

The whale has started to move funds.

This involves spreading liquidity across multiple lenders.

The liquidation wall still exists, but alleviates pressure from Solend.

https://twitter.com/solendprotocol/status/1539176192925806592