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What happens when there’s a multimillion-dollar margin call and no one picks up the phone?

That eerie prospect threatened to become a nightmarish reality last week for Solend, Solana’s second-biggest decentralized finance (DeFi) outpost. Its single-largest user – a wallet with $107 million in USDC borrowed against $170 million in SOL collateral – was on the verge of liquidation and completely MIA.

Developers tried Reddit posts, on-chain messages, even Twitter memes, hoping to alert the anonymous account of its impending fate. The whale account needed to either pony up more collateral or reduce its position to ward off a catastrophic on-chain liquidation that, project leads said, could crash Solend – and maybe even Solana.

The frantic rush to save Solend exploded into a governance and power controversy that elicited accusations of DeFi hypocrisy on Crypto Twitter and beyond.

Ultimately, it was CeFi giant Binance who woke the whale, Solend’s pseudonymous co-founder Rooter told CoinDesk. The world’s largest crypto exchange delivered a message to the account on Rooter’s behalf.

“I’m sorry that this issue has caused concern in the Solana community and with the Solana team,” the user emailed Rooter on June 21, according to screenshots shared with CoinDesk. “There’s no hard feelings about the recent governance proposal.”

After establishing contact, the whale began redistributing its Solend bets into other Solana DeFi outposts like Mango Markets – ending the most acute crisis without a single cascading liquidation. The price of SOL has recovered enough to quiet all the chaos – despite the heavy dose of momentary schadenfreude.

Messy cocktail

Solend’s liquidation debacle came as the turbulent crypto markets rattled DeFi protocols of all stripes, pushing purportedly decentralized governing bodies to make tough decisions that affect protocol users in lasting ways.

That can make for a messy cocktail. In “decentralized finance,” programmatic smart contract code – devoid of the human biases that might, say, prompt a banker to refuse a loan to a minority group – is meant to be the immutable law of the land.

Of course, reality is more complicated.

Solend’s crisis emerged because its protocol had set no limits on how big a borrower could be. That result: A single whale accounted for the vast majority of Solend’s SOL collateral and USDC loans. That collateral was at risk of liquidation if the price of SOL fell too low.

Solend’s smart contracts automatically send liquidation sell orders to DEXs when user collateral falls too low. They’re pure, programmatic. They don’t holistically check to see if a trade will crash the markets, or worse, the chain.

轉貼自: Coindesk

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