The Solana network has been growing in popularity among decentralized finance (DeFi) enthusiasts. The success of many projects on the platform has drawn developers to it and with the developers have come to the investors. With the market crash, many networks in the market have suffered due to declining prices, having to put in various measures to ensure longevity. The most recent happened on Solend, a Solana DeFi protocol, whose actions have drawn the ire of DeFi investors.

Threatening The Safety Of Decentralization

Last week, the price of SOL had trended to the mid $20s, eventually bottoming out at $26 before recovering. This has put a Solana DeFi protocol, Solend, in a perilous position due to the OTC trade of a single whale wallet. The whale had borrowed 108 million in USDT and USDT using 5.7 million SOL. Since it was a leverage position, it meant that 20% of the trade stood to be liquidated if the price of SOL were to fall to $22.3 at any time.

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The amount of the position made it so that liquidation of such proportions would put the entire protocol at risk. This is because decentralized exchanges are often operating with limited liquidity and Solend could not adequately provide the liquidity required to execute such a trade.

SOL prices falls close to liquidation point | Source: Arcane Research

Given that the digital asset had declined dangerously close to the liquidation price, Solend had begun to explore various options to mitigate against this. On Sunday, the protocol released a governance proposal vote which had received 97.5% of votes in favor of passing it. This proposal was to manually liquidate the whale position by initiating a token sale through an OTC desk. This was to bypass the event of the liquidation happening on-chain and heavily impacting the market.

Solana Users Raise Hell

The Solend proposal had quickly gone viral on social media and had drawn the attention of a large amount of Solana users who strongly opposed the decision. To them, this went against everything DeFi stood for and raised questions about how truly “decentralized” the protocol is.

Due to the outrage, Solend had had to reverse its decision and abandon the proposal to temporarily seize the assets of the whale, whose account made up 88% of all borrowed funds and 95% of all deposited SOL on the protocol. In its place, a new proposal was introduced which received 99.8% of affirmative votes to invalidate the first proposal.

SOL price recovers above $36 | Source: SOLUSD on TradingView.com

SOL has since recovered back above $35 since then, pushing back the fears of liquidation in regards to this account. However, the whole debacle has left a mark on the market as users are now questioning if decentralized truly means decentralized in the crypto space.  As such, DeFi users are advised to keep such events in mind when participating and interacting with various protocols which they believe to be decentralized.

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SOL is up 2.87% in the last 24 hours to be trading at $36.28 at the time of this writing. It is the 9th largest cryptocurrency in the space with a market cap of $12.43 billion.