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The current headline "Solana just seized $170MM of user funds to prevent a decrease in Solana's price" is factually incorrect. A project on Solana, called "Sol

by flaque 4y ago

The current headline "Solana just seized $170MM of user funds to prevent a decrease in Solana's price" is factually incorrect. A project on Solana, called "Solend", froze $170m of funds deposited into its protocol. "Solana" didn't seize the funds, nor was the purpose specifically to protect Solana's price.

55555 4y ago
Sorry, I misattributed this in a big way. > nor was the purpose specifically to protect Solana's price. I think it was. What else would the purpose be? Note that I think the true purpose of "preventing Solana network downtime" would be to protect the price. They're trying to avoid cascading liquidations down to zero, because everyone involved in the governance is holding substantial amounts of Solana. I think letting the liquidations happen on-chain, and even cascade, is much more in the spirit of crypto. But an argument could be made, just like with what happened in the LME Nickel market, if you think that letting people wrestle for control of the chain is true decentralization, or if you think that the true goal of a market provider is to provide stability above all else... Forcibly "partially liquidating the position" above liquidation price is pretty indefensible. Are they going to point to a line in their TOS that says that at the end of the day they always have the right to do whatever they want?
- tylersmith 4y ago
  This is entirely about a single a project trying to prevent cascading issues within itself. Claiming this is about Solana itself is a lie and this post should be deleted.
  - laweijfmvo 4y ago
    > This is entirely about a single a project trying to prevent cascading issues within itself. Claiming this is about Solana itself is a lie and this post should be deleted. I'm trying to understand this, but it's beyond me. Can someone ELI5? Here's what I get: Someone borrowed $108M (in USDC and USDT) and put up 5.7M SOL ($170M USD) as collateral, with the terms that if SOL should fall the lender can liquidate the SOL to recoup their loss; in this case, if SOL reaches $22.30, they can recoup ~$20M USD. This all sounds like a perfectly normal lending process. SOL is (was) currently at $32, but the claim is that the borrower seems to have no interest in taking any action and allowing the liquidation to occur. Question: who's making this claim and on what basis? The next claim is that this liquidation, if it were allowed to occur, would cause the price of SOL to fall even further, which also makes sense. The market cap of Solana seems to be ~11.5B (billion with a B); $20M shouldn't be the end of the world? 24hr volume is ~$2B, so this would be 1%. Question: why is allowing this liquidation the end of the world? Last question: what does any of this have to do with Solend? Are they the ones that lent the $108M out, or are they just the middle man? If the former, is the concern that they won't be able to recoup their losses under the terms of the contract and falling price of SOL?
    - yieldcrv 4y ago
      > Question: who's making this claim and on what basis? The Solend Team. https://realms.today/dao/7sf3tcWm58vhtkJMwuw2P3T6UBX7UE5VKxPMnXJUZ1Hn/proposal/HuaL6cDtuNtfnJgvwMnYiZDHVCoLAuDtVFgJD8kYChJ4 https://realms.today/dao/7sf3tcWm58vhtkJMwuw2P3T6UBX7UE5VKxP... > Question: why is allowing this liquidation the end of the world? Its not. They believe a function in their own project will cause the underlying Solana blockchain to have some uptime issues, because a similar function has been a culprit in the past, according to them. (Solana has failed to produce blocks periodically, I haven't followed more specifically why) This function will be called autonomously if the price of the collateral in question continues to decline. The rebuttals are: a) a big cascading liquidation being interrupted by block production issues will just resume as block production resumes. so that's stupid. Solana goes down all the time, if other applications there can't handle that by now that's those application's problem. b) DEX liquidity isn't all liquidity. So if $170m crashes the price on a DEX, that's just an opportunity for anybody paying attention to buy Solana cheap on the DEX and sell it for more on centralized exchanges like Binance and Coinbase. Its not Solend's problem. It is a completely unnecessary and amateurish "vote". > what does any of this have to do with Solend? Are they the ones that lent the $108M out, or are they just the middle man? They're the service being used where people deposit collateral, yes.
      - laweijfmvo 4y ago
        > Its not Solend's problem. Right, that's my confusion. Which is what makes the whole thing smell fishy.
        yieldcrv 4y ago
        Its amateur hour. Currently governance projects have no bylaws to constrict the nature of a proposal, and they have no continuity between proposals to restrict future proposals, and there is no arbiter, and proposal outcomes mostly have to be coded by the original team so people are trusting them, and there is no agreed upon compensation path for a third party implementation team.
- flaque 4y ago
  > What else would the purpose be? I would suspect to protect Solend itself. "Preventing Solana network downtime" feels more like an appeal to Solana people to vote on their proposal rather than ignoring it. > Note that I think the true purpose of "preventing Solana network downtime" would be to protect the price. It is possible, and even the norm among people building things, to not think of everything in terms of "protecting the price" of a token. When Github goes down, the engineers at Github are not thinking "oh no, we must protect $MSFT". They are thinking "Github is down, let's make Github not down".
  - wmf 4y ago
    That's because Github is useful. The only purpose of crypto is to increase in price, so protecting the price is protecting the system.
eknkc 4y ago
Also, it looks like the liquidation was pre approved by the contract that the whale deposited into. It was gonna happen regardless. They are doing this to change the way it is handled (off the chain instead). I’m not sure about the implications but even Solend did not seize anything. I still think this fucked up but it had nothing to do with solana.
- potatototoo99 4y ago
  Smart contracts are supposed to embody "code is law". It's not very lawful to then switch the liquidation with a vague "sell OTC over an undetermined amount of time".
  - eknkc 4y ago
    I agree. They abused their power and perhaps they should not even be able do it technically (at least without forking the chain). Just wanted to clarify what dhey did.
- SilasX 4y ago
  Right, the contract definitely allows Solend to seize the collateral at certain collateral ratios, but I can’t tell if this change just affects how they liquidate when that ratio hits, or it pre-emptively does so now, while the price is far from hitting that ratio. Edit: okay it’s the latter. But remember this is not a seizure as in, just taking it, but also forgiving some of the debt at the same time. https://news.ycombinator.com/item?id=31802692 https://news.ycombinator.com/item?id=31802692

by flaque 4y ago

55555 4y ago

Sorry, I misattributed this in a big way. > nor was the purpose specifically to protect Solana's price. I think it was. What else would the purpose be? Note that I think the true purpose of "preventing Solana network downtime" would be to protect the price. They're trying to avoid cascading liquidations down to zero, because everyone involved in the governance is holding substantial amounts of Solana. I think letting the liquidations happen on-chain, and even cascade, is much more in the spirit of crypto. But an argument could be made, just like with what happened in the LME Nickel market, if you think that letting people wrestle for control of the chain is true decentralization, or if you think that the true goal of a market provider is to provide stability above all else... Forcibly "partially liquidating the position" above liquidation price is pretty indefensible. Are they going to point to a line in their TOS that says that at the end of the day they always have the right to do whatever they want?

tylersmith 4y ago
This is entirely about a single a project trying to prevent cascading issues within itself. Claiming this is about Solana itself is a lie and this post should be deleted.
- laweijfmvo 4y ago
  > This is entirely about a single a project trying to prevent cascading issues within itself. Claiming this is about Solana itself is a lie and this post should be deleted. I'm trying to understand this, but it's beyond me. Can someone ELI5? Here's what I get: Someone borrowed $108M (in USDC and USDT) and put up 5.7M SOL ($170M USD) as collateral, with the terms that if SOL should fall the lender can liquidate the SOL to recoup their loss; in this case, if SOL reaches $22.30, they can recoup ~$20M USD. This all sounds like a perfectly normal lending process. SOL is (was) currently at $32, but the claim is that the borrower seems to have no interest in taking any action and allowing the liquidation to occur. Question: who's making this claim and on what basis? The next claim is that this liquidation, if it were allowed to occur, would cause the price of SOL to fall even further, which also makes sense. The market cap of Solana seems to be ~11.5B (billion with a B); $20M shouldn't be the end of the world? 24hr volume is ~$2B, so this would be 1%. Question: why is allowing this liquidation the end of the world? Last question: what does any of this have to do with Solend? Are they the ones that lent the $108M out, or are they just the middle man? If the former, is the concern that they won't be able to recoup their losses under the terms of the contract and falling price of SOL?
  - yieldcrv 4y ago
    > Question: who's making this claim and on what basis? The Solend Team. https://realms.today/dao/7sf3tcWm58vhtkJMwuw2P3T6UBX7UE5VKxPMnXJUZ1Hn/proposal/HuaL6cDtuNtfnJgvwMnYiZDHVCoLAuDtVFgJD8kYChJ4 https://realms.today/dao/7sf3tcWm58vhtkJMwuw2P3T6UBX7UE5VKxP... > Question: why is allowing this liquidation the end of the world? Its not. They believe a function in their own project will cause the underlying Solana blockchain to have some uptime issues, because a similar function has been a culprit in the past, according to them. (Solana has failed to produce blocks periodically, I haven't followed more specifically why) This function will be called autonomously if the price of the collateral in question continues to decline. The rebuttals are: a) a big cascading liquidation being interrupted by block production issues will just resume as block production resumes. so that's stupid. Solana goes down all the time, if other applications there can't handle that by now that's those application's problem. b) DEX liquidity isn't all liquidity. So if $170m crashes the price on a DEX, that's just an opportunity for anybody paying attention to buy Solana cheap on the DEX and sell it for more on centralized exchanges like Binance and Coinbase. Its not Solend's problem. It is a completely unnecessary and amateurish "vote". > what does any of this have to do with Solend? Are they the ones that lent the $108M out, or are they just the middle man? They're the service being used where people deposit collateral, yes.
    - laweijfmvo 4y ago
      > Its not Solend's problem. Right, that's my confusion. Which is what makes the whole thing smell fishy.
      - yieldcrv 4y ago
        Its amateur hour. Currently governance projects have no bylaws to constrict the nature of a proposal, and they have no continuity between proposals to restrict future proposals, and there is no arbiter, and proposal outcomes mostly have to be coded by the original team so people are trusting them, and there is no agreed upon compensation path for a third party implementation team.
flaque 4y ago
> What else would the purpose be? I would suspect to protect Solend itself. "Preventing Solana network downtime" feels more like an appeal to Solana people to vote on their proposal rather than ignoring it. > Note that I think the true purpose of "preventing Solana network downtime" would be to protect the price. It is possible, and even the norm among people building things, to not think of everything in terms of "protecting the price" of a token. When Github goes down, the engineers at Github are not thinking "oh no, we must protect $MSFT". They are thinking "Github is down, let's make Github not down".
- wmf 4y ago
  That's because Github is useful. The only purpose of crypto is to increase in price, so protecting the price is protecting the system.

eknkc 4y ago

Also, it looks like the liquidation was pre approved by the contract that the whale deposited into. It was gonna happen regardless. They are doing this to change the way it is handled (off the chain instead). I’m not sure about the implications but even Solend did not seize anything. I still think this fucked up but it had nothing to do with solana.

potatototoo99 4y ago
Smart contracts are supposed to embody "code is law". It's not very lawful to then switch the liquidation with a vague "sell OTC over an undetermined amount of time".
- eknkc 4y ago
  I agree. They abused their power and perhaps they should not even be able do it technically (at least without forking the chain). Just wanted to clarify what dhey did.
SilasX 4y ago
Right, the contract definitely allows Solend to seize the collateral at certain collateral ratios, but I can’t tell if this change just affects how they liquidate when that ratio hits, or it pre-emptively does so now, while the price is far from hitting that ratio. Edit: okay it’s the latter. But remember this is not a seizure as in, just taking it, but also forgiving some of the debt at the same time. https://news.ycombinator.com/item?id=31802692 https://news.ycombinator.com/item?id=31802692