According to an analysis from investment manager firm VanEck, exchange volume across DeFi protocols declined to $52.8 billion in August, 15.5% lower than in July.
DeFi and Credit Risk
As a potentially disruptive sector, DeFi must set aside some of its lofty ideals, for now, and focus on financial solutions with demonstrable global demand and adoption.
Curve Crisis Shows Pitfalls of Decentralized Risk Management
Top DeFi lenders allowed a crypto CEO to take a risky bet, raising key questions about how they manage risk.
Aave DAO opens voting on proposals to reduce CRV exposure
Aave token holders are voting on three proposals that could reshape the protocol’s exposure to Curve DAO token.
Aave Token Holders Voting on 2 Proposals Following Averted Curve Liquidation Crisis
The proposals, which aim to disable CRV borrowing and decrease Aave’s exposure to Curve’s native token on its Ethereum V2 markets, are responses to the liquidation pressure faced by Curved founder Michael Egorov.
Curve Impressively Adds 22% As Founder Sells CRV To Repay Aave Loan
CRV, the governance token of Curve, a decentralized exchange for stablecoins and a key player in the decentralized finance (DeFi) landscape, has impressively recovered, adding 22% after sinking to its August 2023 lows this week.
When writing on August 3, CRV is trading at $0.59, rising double digits after dropping to $0.48 on August 1 following a damaging hack that saw liquidity providers in several pools lose funds.
Whales Stepping In To Buy CRV
This recovery is attributed primarily to strategic actions by notable crypto whales who have stepped in to mitigate risks on DeFi should CRV prices continue to tank. Meanwhile, Michael Egorov, the founder of Curve and one of the largest CRV holders, has been actively unloading tokens in the secondary market.
Egorov is selling to whales like Justin Sun, the founder of Tron, and other venture capitals and decentralized autonomous organizations (DAOs). The founder held around 292 million CRV and used a big percentage to back his loans.
On-chain data indicates that on August 2, Egorov sold 3.75 million CRV tokens to Yearn Treasury and another 1.25 million CRV tokens to Stake DAO Governance via the over-the-counter (OTC) market.
Egorov has, overall, sold 59.5 million CRV to various institutions and investors, yielding approximately $23.8 million. These OTC sales are at significant discounts, reflecting the founder’s efforts to stabilize CRV prices and prevent further contagion.
The July 30 hack saw attackers steal funds from several liquidity pools after exploiting a re-entrancy flaw. JPEG’d, Alchemix, Pendle, and Metronome pools suffered losses initially estimated at around $70 million. However, other reports suggest that white hat hackers intervened, reducing the total impact to approximately $50 million.
Following this news, CRV prices dropped by over 12%. Considering Curve’s prominence in DeFi, the hack and price crash caused reverberation throughout Curve and DeFi, especially in decentralized money markets.
Curve Is A Big Player In DeFi, Egorov Paying Off Debt
Curve manages over $2 billion as total value locked (TVL), according to DeFiLlama. While there are no confirmed repercussions on other protocols, attention swung to Egorov’s $60 million Aave v2 loan, which was primarily backed by CRV. Should this loan be liquidated, it would likely mean more selling pressure on CRV, leading to another possible contagion, especially for other CRV holders with loans across different protocols.
Looking at on-chain data, Egorov is taking active steps to reduce the risks brought about by his huge Aave loan that’s overly collateralized by CRV. Egorov aims to minimize the potential consequences of forced liquidation through off-market transactions, where he is selling his CRV at a discount and simultaneously repaying his loan. This, in turn, appears to be supporting prices.
Curve Founder Still Owes $80M Despite Raising Nearly $30M in Past Two Days
Michael Egorov is under liquidation pressure following the CRV’s recent price drop and Curve exploit.
Aave Chan founder proposes buying $2M CRV from Curve founder
The proposal drew mixed reactions from the community where some criticized the strategy for buying more CRV even as others are looking to shed exposure.
Protocol to identify ‘systemically important’ blockchain banks could help prevent a market crash: Study
After the collapse of Terra, the digital assets sector needed a way to identify critical nodes in the global DeFi community.
Michael Egorov’s $100 Million Position, A Risk To Curve Finance And DeFi?
Following the recent exploit of Curve Finance pools, there have been genuine concerns about the stability of the decentralized exchange and the Decentralized Finance (DeFi) ecosystem. A new report has emerged, raising questions about Curve founder Michael Egorov’s $100 million loan positions.
These positions have garnered significant interest, as they are backed by about 47% of the entire CRV circulating supply. With the price of CRV dwindling, these debts appear to be at risk of liquidation, putting the Curve protocol, CRV investors, and the overall DeFi space on edge.
A Breakdown Of Michael Egorov’s $100 Million Loan
On Tuesday, August 1, crypto research firm Delphi Digital released a series of tweets, detailing the loan positions being held by Michael Egorov. According to the report, the Curve Finance founder has around $100 million in loans across various lending protocols backed by 427.5 million CRV tokens.
Egorov has a 63.2 million USDT loan backed by 305 million CRV tokens on Aave. Delphi Digital revealed that the position has a liquidation threshold of 55% and is eligible for liquidation at 0.3767 CRV/USDT.
For context, the CRV currently trades at $0.608595, according to CoinGecko data. This means that a 38% price decline will cause a liquidation of Egorov’s position on the Aave protocol.
Meanwhile, the Curve founder has 59 million CRV backing a loan of 15.8 million FRAX on Frax Finance. Although this debt is much lower than his Aave position, it poses a much more significant risk to CRV due to Fraxlend’s Time-Weighted Variable Interest Rate.
Delphi Digital also noted that liquidation of the Frax loan position can occur regardless of CRV’s price. According to the research firm, the loan is currently at 100% utilization, which allows the interest rate to double every 12 hours.
While the interest rate currently stands at 81.20%, Delphi Digital said that it can potentially increase to the maximum of about 10,000% APY in 3.5 days. This high-interest rate could result in the eventual liquidation of the debt.
How Has The Curve Finance Founder Responded?
So far, Michael Egorov has tried to stabilize his positions and the utilization rate twice, repaying a total of 4 million FRAX on July 31st. However, the utilization rate remained at 100%, as users swiftly remove liquidity as soon as he makes the payment.
To address this, the Curve founder deployed a new Curve pool on Tuesday, August 1. This pool consists of stablecoin crvUSD and Fraxlend’s CRV/FRAX LP token, seeded with 100,000 CRV rewards.
This is to incentivize liquidity toward the lending market, decrease the utilization rates, and ultimately reduce the liquidation risks.
According to Delphi Digital, this pool attracted $2 million in liquidity and lowered the utilization rate to 89% four hours after launch.
DeFi Died and We Didn’t Even Notice
The behavior of Curve founder Michael Egorov is warning to all, and proof that DeFi isn’t really that different from traditional finance.
Spooked by Curve Liquidation Threat, DeFi Protocols Shore Up Defenses
They’re responding to the potential systemic risk posed by Michael Egorov’s teetering financial position.
Ethereum DeFi Coins Plunge As Curve Concerns Threaten Major Market Crash
The Ethereum DeFi space is currently experiencing a rough few hours. All major DeFi coins are posting deep red numbers in the last 24 hours: Compound (-18%), Aave (-10%), Curve (-10%), Frax (-6%), and Synthetix (-6%).
The reason? Curve Finance, a flagship decentralized exchange specializing in stablecoin swaps, recently suffered a significant exploit. The resulting aftershocks are being felt across the DeFi ecosystem, inciting fears of a broader Ethereum DeFi massacre. The exploit, causing a damage of around $100 million, sets off potential domino effects threatening the stability of the wider DeFi landscape.
Curve Hack Sparks Fears Of Ethereum DeFi Crash
Delving into the details of the exploit reveals the intricate dynamics at play. The attackers took advantage of vulnerabilities in the Vyper smart contract software, leading to the significant losses on Curve Finance. The repercussions of this incident have been profound. The popular stablecoin DEX Curve Finance could be a ticking time bomb for the rest of the Ethereum DeFi sector.
Post-incident, it is reported that over $45 million has been drained from liquidity pools of third-party providers, with an additional $25 million directly siphoned from the Curve Protocol’s CRV/ETH pool. The ensuing liquidity crisis and the impending risk of further sell-offs, given the millions of Curve (CRV) tokens still held by the attackers, is generating substantial anxiety within the market.
The founder of Curve Finance, Michael Egorov, has not been immune to these significant losses. His large positions backed by CRV have come under intense pressure, pushing the platform to the brink. Delphi Digital explains, “Curve founder, Michael Egorov, currently has a ~$100 million loan backed by 427.5 million CRV (about 47% of the entire CRV circulating supply). With CRV down 10% over the past 24 hours, the health of Curve is in jeopardy.”
Furthermore, Egorov holds large loans on Aave and Frax Finance, backed by CRV collateral. On Aave, he has a $305 million CRV backed loan amounting to 63.2 million USDT. At a liquidation threshold of 55%, his position could be liquidated if CRV/USDT hits $0.3767. As per Delphi Digital’s assessment, this would require a ~33% drop in the CRV price. Egorov also carries a ~4% APY for this loan.
The situation on Frax Finance is even more precarious. Here, Egorov has supplied 59 million CRV against 15.8 million FRAX of debt. The high utilization and the Time-Weighted Variable Interest Rate, doubling every 12 hours, makes his position particularly vulnerable to astronomical interest rates and subsequent liquidation, irrespective of the CRV price.
Delphi Digital emphasizes, “This astronomical interest rate could lead to his eventual liquidation, regardless of CRV price. At a max LTV of 75%, his position’s liquidation price could reach 0.517 CRV/FRAX within 4.5 days, less than a 10% decrease from current prices.”
Today, Egorov deployed a new Curve pool and gauge: a 2 pool consisting of crvUSD & Fraxlend’s CRV/FRAX LP token, seeded with 100,000 of CRV rewards. However, with no success. Utilization was quickly back to 100% as illiquid CRV holders took Frax stables to exit, and Frax lenders bailed on risky pool. Thus, Egorov’s new pool is just spending more of his CRV and not bringing his interest rate down.
As the market grapples with the mounting liquidation risk of Egorov’s positions, the potential market-wide repercussions are alarming. Autism Capital warns, “If Michael gets liquidated by Fraxlend, all of his other debt positions will be liquidated too. This likely means Inverse Finance (INV) and Magic Internet Money (MIM) will both die due to the new bad debt, and Aave will get stuck with $63 million of bad debt.” Moreover, a liquidation of Egorov will likely trigger cascades on-chain and nuke CRV to almost zero.
Not All Hope Is Lost
However, despite the ensuing chaos, the DeFi sector’s operations, strictly governed by code and math, remain unaffected. As Autism Capital rightly puts it, “In one sense, this is proof that DeFi works as intended. There are no special rules or bailouts, no matter who you are. It’s a brutal free market governed by math and code.”
Moreover, there’s still hope for a happy-end. Assuming liquidity recovers, the DeFi sector might regain balance. The Curve team has indicated that several millions in US dollars are in possession of white-hat hackers. This could potentially enable the recovery of some of the misappropriated assets. Additionally, some bots intercepted a significant quantity of CRV tokens from the Curve attackers.
Nevertheless, the threat of the situation spreading remains a serious concern. Platforms like Frax, Aave and others remain on high alert, while some, like Alchemix, have already halted their smart contracts.
[UPDATE]
It looks like Egorov got an OTC deal with a CEX, paying off his debt. This is the reason for CRV’s price rebound.
About to drop to $13M loaned.
The money is definitely coming from an OTC deal.
It looks like a handshake deal. He’s selling his CRV at 0.4
2.5M crv for 1M usdt clips
Which one of you chads got the sick deal? I assume this will go until entire debt paid off. pic.twitter.com/3c5OmcQ7wH
— Midas: Fool’s Gold (@MidasFoolsGold) August 1, 2023
At press time, the Curve (CRV) price saw a slight recovery within the last three hours, rising to $0.57.
Chainlink’s Interoperability Protocol, Connecting Blockchains to ‘Bank Chains,’ Goes Live
This is the launch of the standard that could connect all of the blockchains and all of the bank chains, Sergey Nazarov said in an interview with CoinDesk.
Bitcoin price support at $30K opens the door for gains from UNI, ARB, AAVE and MKR
BTC price is back in its range, potentially given opportunities for UNI, ARB, AAVE and MKR to move higher.
5 peer-to-peer (P2P) lending platforms for borrowers and lenders
Discover five platforms — Aave, Compound, MakerDAO, dYdX and Fulcrum — that are transforming lending and borrowing through decentralization.
Aave DAO to Vote on Gho Stablecoin Deployment on Ethereum
GHO has been in the works for over a year and was issued on a testnet earlier this year.
Aave Holders Vote on Proposal for DeFi Protocol to Convert 1,600 Ether Into wstETH and rETH
Holders of Aave, the token that underpins its namesake’s decentralized finance (DeFi) protocol, are taking part in a governance vote that will decide whether 1,600 ether (ETH) in the protocol’s treasury will be converted to wrapped staked ether (wstETH) and rocket pool ether (rETH).
LTC, XMR, AAVE, and MKR turn bullish as Bitcoin stalls under $31K
Bitcoin’s narrow range trading may end soon and if an upside breakout happens. Meanwhile, LTC, XMR, AAVE and MKR are showing strength.
Trader takes $4m short position on TrueUSD as issuer halts mints and redemptions
An Ethereum user used Aave’s V2 lending platform by depositing 7.5 million USDC as collateral.