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Rooter, the founder of Solend, revealed to CryptoSlate what happened behind the scenes when cryptocurrencies voted to manage users’ accounts to clear OTC funds. Eventually, the decision was overturned and Solend was able to work with the whale to reduce his position by other means.
In the next interview, Router frankly talked about “sleepless nights” and the real fear that the Solana Network couldn’t handle whale liquidation. We talked about how the decision to take over the whale account was made, its motives, how the problem was initially created, and how Solend would prevent the situation from happening again.
Interestingly, Rooter argued that users who lose something at a clearing event are in favor of DAO’s proposal and are the most vocal “nothing to lose” people. Nothing to lose came from the broader DeFi community, which saw DAO’s proposal against core decentralized finance tenants.
However, Rooter pointed out that the clearing bot that handles clearing is not configured to handle such large DEX transactions. The DAO decision may not have been ideal, but it could have been the only option available in the DeFi protocol without tools to thwart major problems on the horizon. Read the interview below to discover why Solend believed that the clearing event could have had a profound impact on the entire Solana network.
When did you first notice that there was a problem with your whale’s wallet?
Whale purses have been known since February. Your account will be checked intermittently. June 15th is the time when the magnitude of the risk became clear.
Do you think you need a better way to communicate with your users on defi?
Yes, I wish I had a well-known notification system.
Did you foresee the potential problem of having one wallet with over 90% of your liquidity pool?
All the steps Solend took during this incident were aggressive in avoiding the actual crisis.
For a long time, Solend had such a large deposit / borrowing ($ 20B / $ 10B) that it was unlikely that a single account would represent such a large share. Due to recent sales and de-leveraging, the proportional size of whales has grown rapidly. Solend is now adding automatic monitoring of concentrated risk, so we can take a more proactive approach.
Since the incident, we have decided to cap deposits-does such behavior limit the potential for DeFi?
Solend always has a deposit limit, which has been lowered since the incident.
The potential of DeFi is 1) the ability to make finance transparent to avoid the liquidity crisis currently seen at 3AC / C., etc., and 2) allowing anyone in the world to access financial services. It is in the ability to prevent it. As DeFi matures, limits are just the guardrails you need.
You say your users were the main focus and voting to manage whale accounts was not a selfish act. What evidence or analysis did you do to confirm that selling about $ 113 million in SOL would affect Solana’s global price?
When a real trolley problem occurs, the user comes first. Solend clearing bots tend to work entirely on the chain. In other words, it will be settled and sold by DEX.You can get a quote for slipping on jup.ag This showed a gap of about 5% in the $ 2 million market sale. This is less than 2% of the amount that can be settled. This whale liquidation causes a flood of bot activity for liquidators seeking to win the clearing and arbitrage traders seeking to arbitrate the exchange. This big MEV opportunity is unprecedented in Solana. In the worst-case scenario, Solana can be down for hours in one of the most volatile times ever.
Do you think the need to maintain growth in a bull market has influenced decision making?
Solend was launched in the bull market. Risk has always been a top priority for us. Initially, deposit limits were as low as $ 1 million per asset and $ 10,000 per user. The limit gradually increased. Solend has also launched a bug bounty program that pays up to $ 1 million for critical security vulnerabilities. We have also set up a separate pool to allow high-risk assets to be siled in separate markets.
Have you thought of a precedent for setting up by taking over a user’s Solend account?
“Hijacking a user’s account” is an imperfect characteristic. The suggestion was to liquidate the OTC in a way that minimizes user risk. The user’s funds remain theirs. There was no perfect solution. Suggested the only option we had. We build, so you never have to face the situation again.
How was behind the scenes at the event?
Behind the scenes, there were many sleepless nights and high pressure situations. I also spent a lot of time interacting with users and the community on Discord. One of the interesting insights is that most of the users whose funds are at stake due to whales (which cannot be withdrawn because the USDC pool is 100% used) are taking action. The biggest complaints came from people who weren’t at risk. I’m glad that the problem was finally resolved properly. No user has lost money.
What is the future of Solend?
Solend is improving the system, so this issue will never occur again.
