Solend DAO passes proposal to take over the account of a large holder with a position that poses systemic risk

Solend DAO, the DAO behind the Solend lending protocol on Solana, just passed its first ever governance proposal. A whale used their platform to take out an enormous margin position, depositing 5.7 million Solana (currently worth $170 million) to withdraw $108 million in stablecoins. Their position represents 95% of all Solana deposits on the platform, and the position risks partial liquidation if Solana drops in price to $22.30.

The proposal allows Solend to temporarily take over the whale's account to liquidate the position "gracefully", rather than allowing the liquidation to happen as it normally would. This stems from the concern that the partial liquidation (20%, or around $21 million) would "cause chaos" on both Solend and the Solana blockchain more broadly. The proposal outlined concerns around Solend potentially ending up with bad debt, and liquidators "spamming the liquidate function" and potentially taking down the Solana chain.

The proposal elicited strongly negative reactions from many in the crypto community, who feel that a project taking over a user's account flies in the face of the concept of defi and sets a dangerous precedent. Others blame Solend for allowing the position in the first place, given the level of systemic risk. Some have also pointed out that Solend may be exposing themselves to legal risk by retroactively changing the terms of the loan.

The proposal succeeded hours after it was proposed, with one whale providing 1 million votes out of the 1.15 million votes in favor.