By Geoffrey Smith
Investing.com -- Crypto lender Solend backtracked Monday on a plan to take over a large account to stop it from crashing its system.
Solend, a lending platform based on the Solana blockchain, said it had passed a governance proposal, invalidating the one that it had hurriedly enacted on Sunday, triggering an outcry from its users. The new proposal will also limit the network's administrators to rush through similar measures in future, increasing the allowed voting time on governance changes to one day.
The about-face is the latest in a string of emergency measures imposed by self-styled decentralized lending platforms to deal with a rush of withdrawals as the price of most cryptocurrencies falls in response to the tightening of global monetary policy by the world's central banks. It illustrates the difficulties faced by a new system of 'decentralized' finance that aspires to exist without a central intermediary such as a regulated bank at its heart.
Solend's admin team had announced on Sunday it would take control of a so-called 'whale account' whose activity had the hallmarks of a speculative attack on the value of Solana. The account had deposited 5.7 million Solana, worth around $170 million, and borrowed a corresponding amount of the stablecoin USD Coin. That meant that the 'whale' stood to profit if Solana dropped against the dollar, to which USD Coin is pegged.
At the time, the account represented some 95% of Solana deposits in the system, and 80% of the total USDC borrowed on the system - a stark illustration of the contrast with traditional finance, where exposures to single counterparties over a certain level are banned as a matter of course by regulators.
Solend said it had only taken its emergency measure after the unknown whale had failed to respond to its overtures for nearly two weeks, in which time, Solana had lurched to its lowest level since last summer. The team said it would have had to part-liquidate the position if Solana had fallen below $22.30.
At it happens, the disaster facing Solend was averted by a bounce in Solana over the last week. The cryptocurrency bottomed at just over $26 and had recovered to $36.65 as of 7:45 AM ET (1145 GMT) on Monday. It has still fallen 75% from its April peak, however.
Solend's team acknowledged in its Monday statement that it had been the bounce that had allowed it to change course.
Solend said it's now working on a new governance proposal to guarantee system resilience "that does not involve emergency powers to take over an account."