Solend DAO passes proposal to take over the account of a large holder

Related ongoing thread:

Solend seized $170M of user funds - https://news.ycombinator.com/item?id=31802600 - June 2022 (60 comments)

Reading the title got a genuine laugh. Web3 is just such a ridiculous clown show of people discovering why existing institutions, regulations and processes exist in real-time.

Criticism of our monetary institutions is absolutely fair, but the Web3 crypto space has really proven it won’t make a positive difference whatsoever.

Exactly lol. Instead of greedy people screaming "eat the rich" they'll just be like "your cash is ours now lmao" and steal via voting.

Can someone tell me if my understanding is correct?

Soland offers a service to loan stablecoins out. To do this, you need to provide some amount of their solana coin as collateral. Additionally, because it’s a loan they expect their initial stablecoin back, plus a little bit extra.

So someone had a /lot/ of solana. They believed that they could make more money in some alternative coin, rather than keeping their existing solana. So they convert their solana into stablecoin using soland and buy some other coin using that stablecoin.

Since then, the crypto markets have lost a lot of value. The chance that the lender can pay the loan back is very low. Additionally, there’s a clause that says if the price of solana goes below some amount, the solana used as collateral will be sold.

Now, if the collateral is sold, it will introduce a huge supply of solana coin, which drives down the price. This feeds into the solana price dropping, which sells more collateral. A death spiral.

To avoid this, the DAO is taking over the account and selling the coins prematurely, before liquidation happens.

Is that right at all?