What happens if you do not answer the phone when a million dollar margin call comes in?
Last week, this frightening possibility almost became a reality in Solend, which is the second largest distributed financial colony (DeFi) in Solana. One of its largest clients, a wallet with $ 107 million in USDC borrowed against $ 170 million in SOL collateral, was completely missing and was on the verge of bankruptcy.
Developers used Reddit posts, chain messages and even Twitter jokes to try to alert the anonymous account that it was about to close. To stop a catastrophic bankruptcy of a chain that, according to project leaders, could bring down Solend and even Solana, the whale account had to either pledge more or reduce its stake.
The race to save Solend turned into a fight over who was in power and how things were run, leading to allegations of hypocrisy against DeFi on Crypto Twitter and elsewhere.
Binance, a giant in the CeFi market, finally woke up the whale, said Rooter, co-founder of Solend, who spoke to CoinDesk. The largest cryptocurrency exchange in the world sent a message to the account on behalf of Rooter.
Photos sent to CoinDesk show that the user wrote to Rooter on June 21, saying, “I’m sorry this problem made the Solana community and the team nervous.” “The current plan to govern the country has not angered anyone.
Administration Approves DeFi Protocol Solend Votes to Reverse “Emergency Power”
When the whale contacted and began transferring its Solend bets to other Solana DeFi outlets such as Mango Markets, the worst of the crisis was resolved without any bankruptcy proceedings. Even though there has been a lot of short-term Schadenfreude, the price of SOL has risen enough to calm the situation.
Unstable cryptocurrencies shook DeFi protocol of all kinds, which caused Solend’s liquidation to fail. This meant that alleged decentralized management agencies had to make difficult decisions that would affect users’ protocols for a long time.
It can make the drink messy. In “decentralized finance”, clever contractual rules that cannot be changed by bias, such as when a banker rejects a loan for a minority group, are meant to be the country’s unchangeable law.
Of course, real life is not that simple.
Solend was in a difficult position because its ethics did not limit the size of the borrower. As a result, one whale was responsible for most of the USDC Solends and SOL mortgages. If the price of SOL fell too low, there was a chance that the mortgage would have to be sold.
When users ‘insurance becomes too low, Solends’ smart contracts automatically send the winding-up order to DEX. They have been installed in every way. They do not think carefully about whether a deal will cause markets or, worse, the whole chain to fall.
not a day
Even though SOL trades for billions of dollars every day, most of it takes place on central exchanges instead of DEX, DeFi’s cousin, Solend, being much less busy. Because DEXs do not have enough cash on hand to deal with the whale dump, the price of SOL would fall (by up to 60% or 80%) until buyers judged it again.
Rooter said this was a problem in itself: “There is such a high probability of artistic judgment and bankruptcy that robots would soar immediately. In the past, doing something like this, took down the entire Solana blockchain.
Solend made sure he went through the most pain. Bad debts, smaller bank accounts and dissatisfied users would be the consequences. Rooter said that if the smart deals worked as planned, “it’s pretty much done for us and our users would lose a lot of money.
Thinking back on the expansion plan, he said: “We have to do something now.
In traditional finance, bankers can deal with a similar problem by calling a “margin” to a customer to explain the risk and the need for more collateral to secure loans. They know who their counterparties are and they can reach the borrower by phone or email. This is not the case with the pseudonym DeFi (although a handful of start-ups are working on messaging solutions between wallets, which Solend did not use).
Since they could not speak quietly, Rooter posted a message on Twitter to get the whale’s attention. People were scared, so they took a lot of money from Solend, just like they would in a bank robbery. Rooter admits that tweeting did not work.
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