Concern is mounting over a large loan that the Curve Finance founder took out with his stash of the protocol’s native token. As the price of CRV continues to fall, a large liquidation looms.
Curve Finance founder Michael Egorov’s DeFi debt is teetering on liquidation, which could have a cascade effect across the decentralized finance ecosystem.
DeFi Black Swan Event?
The risks of a black swan event in the DeFi ecosystem are real. According to DeFiLlama, there are 300 million CRV tokens to liquidate from the Aave ecosystem.
The total liquidatable value is just under $117 million and the majority of these are from Egorov’s loan.
Moreover, liquidations will occur if CRV falls to $0.371. It is currently just above $0.50.
DeFi strategist “olimpio” explained the problem:
“There’s not a single exchange or DeFi protocol where one can sell such a large CRV amount.”
On Aug. 1, Ethereum advocate Ryan Sean Adams provided some background.
The founder of Curve Finance borrowed over $100 million in stablecoins on various DeFi lending protocols using his CRV stash as collateral.
Egorov chose this method rather than selling CRV directly and having the community turn on him. Media has reported that he has been spending lavishly on multi-million-dollar mansions in Australia.
The value of CRV is now falling due to the Curve Finance exploit with DeFi protocols raising interest rates for the asset. “The founder may not be able to pay down his CRV loans before they’re liquidated,” commented Adams.
According to Debank, Egorov also has large positions in Frax, Abracadabra, Inverse, Convex, and Silo, all nearing liquidation. There could also be issues for the crvUSD stablecoin if he wants to use these risky holdings to mint it.
Delphi Digital reported that Egorov has attempted to lower his debt and utilization rate. He has been repaying FRAX debts however, “users are rushing to remove liquidity as soon as he repays.”
CRV Tanks Further
There is currently not enough liquidity to sell that much CRV, so the protocol, Aave, in this case, could end up with bad debt. Freezing Curve loans on Aave was proposed in June when this bad debt risk was highlighted.
MakerDAO founder Rune Christensen added his thoughts on the “risk of bad debt and liquidations in the ecosystem.”
“This might seem like an “it’s over” moment, but perhaps it’s just this cycles Black Thursday – the last crash before the bull market, with everything coming back 100x stronger,”
The CRV collapse continues, with the DeFi token dumping 22% on the day. CRV is currently priced at $0.502, just 25% away from liquidation pain.
Unless the token stabilizes at current levels and begins to show signs of recovery, things could quickly get much worse for DeFi.
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