Curve Founders Loans are Facing Liquidation if the CRV Price Touches $0.3?
In Brief
The recent drama in the Curve ecosystem has been provoked by the founders’ significant collateral stakes in CRV tokens.
They utilized these stakes to cash out using lending protocols. These positions are now under liquidation threat if the CRV price hits a certain level.
The global DeFi industry is once again the spotlight, and this time, it’s due to the challenges that Curve, an Australian protocol’s founders, are currently facing. The recent turmoil in the Curve universe originated from the founders’ substantial collateral positions in CRV tokens. They leveraged these positions to cash out into the tangible world through various lending protocols. However, these positions now teeter on the brink of liquidation, a scenario that could unfold if the CRV price plunges to a specific point.
Founder of OG DeFi protocol Curve, Mikhail Egorov, had built significant collateral positions using CRV tokens across various lending platforms. The total CRV pledged includes:
- 305M CRV in AAVE as collateral for 70M USDT/USDC
- 63.5M CRV in Abracadabra against 18.7M MIM
- 46.6M CRV in Fraxlend against 12M FRAX (optimized amount)
- 25M CRV in Inverse against 7.7M Dola
When the market was in an uptrend and the CRV token hovered around $7, the collateral was valued at a hefty $3B. Mikhail faced no criticism during this period, given the ongoing Curve Wars for CRV issuance.
The Curve Drama Unfolds
However, recent events have upset the curve. Lawsuits filed by several venture capitalists accusing Mikhail of unfair protocol launch and monopolizing initial issuance, criticism over his $40M mansion purchase in Australia, and a recent protocol hack due to a vulnerability in Vyper versions have contributed to a steep fall in the CRV token price.
Mikhail’s wallet value dipped from $250M to $205M based on market evaluation, and one of the protocols decided to forcefully increase the interest rate on Mikhail’s position to compel him to repay the debt.
#MovingAsset The founder of #Curve, Michael Egorov, sold 4.25 million $CRV to DCF GOD at an average price of $0.4 via OTChttps://t.co/3EaR1p6eq6 pic.twitter.com/uW71BU4LpY
— MovingAsset (@movingasset) August 1, 2023
The Intensifying Borrowing Rate Dilemma
FraxLend protocol employs a multiplier to increase the borrowing rate when the pool’s utilization reaches 100%. Consequently, the borrowing rate for FRAX against CRV soared to 64% annually in the morning and could obliterate Mikhail’s position by Wednesday if it continued to rise at the same rate, potentially reaching an annual 10000%.
Nevertheless, it appears that Mikhail began employing over-the-counter (OTC) transactions, exchanging 1M USDT followed by 2.5M CRV, which was a 31% discount to the current price of $0.57. In the past hours, the buyer received a repayment of 5M USDT against a transfer of 12.5M CRV.
This caused the pool utilization in FraxLend to drop to 80%, giving Mikhail some respite since the borrowing rate against FRAX would become market-oriented.
The Ambiguity of the Protocol’s Future and the Domino Effect
With the Total Value Locked (TVL) plunging by 50%, the future of the protocol is ambiguous. It is uncertain whether Curve can regain the market’s trust and whether this won breather might turn out to be a ticking time bomb. It could lead to the liquidation of the largest part of the collateral deal – 305M CRV in the AAVE protocol against 70M withdrawn stablecoins.
If AAVE absorbs bad debt, it might have to resort to selling its native token to repay stablecoin depositors, potentially triggering a massive sell-off of its native token.
Founder’s On-chain Liquidation Price
With the on-chain liquidation price for the founder approximated between $0.3-$0.35, the bearish trend seems likely to persist until he manages to repay his debt.
The downturn of Bitcoin a few hours ago has exacerbated the situation. After all, if investors are wary of holding onto Bitcoin, how likely are they to hold onto CRV, an asset currently fraught with risks?
👀 #Curve founder Michael Egorov sold 5 million CRV to Justin Sun through OTC transactions at a price of $0.4. https://t.co/1yDwmgs4uk
— tØxblock (@t0xblock) August 1, 2023
However, if liquidation impacts the Curve founder’s position on AAVE, investors might want to consider taking on a small risk to buy CRV. It’s essential to distinguish that CRV is not Luna – CRV cannot expand its supply out of thin air in the same way Luna can. This simplicity makes the sell-off much like an over-leveraged position from a whale, potentially providing an opportunity for investors to bolster their spot bag. At the same time, Mpost.io does not make any financial recommendations.
Ethical Dilemmas and Luxury Problems
Two primary questions arise from this scenario: Firstly, when will Mikhail receive market assistance for buying CRV tokens from Andrew Kang and Justin Sun? Secondly, was it ethical to use the CRV token as collateral against a $100M cash-out from the DeFi ecosystem?
While the answers to these questions are still unknown, one thing is certain: the financial decisions taken by the Curve founders in the past have significant repercussions today. It is a timely reminder for all investors of the unpredictable nature of DeFi investments and the importance of maintaining a balanced and risk-managed portfolio.
Read more:
- The Aftermath of the Curve Finance Hack
- Justin Sun Buys 5m CRV to Support Curve
- The BALD Meme Coin Liquidity Mystery: Is Sam Bankman-Fried Involved?
Disclaimer
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About The Author
Nik is an accomplished analyst and writer at Metaverse Post, specializing in delivering cutting-edge insights into the fast-paced world of technology, with a particular emphasis on AI/ML, XR, VR, on-chain analytics, and blockchain development. His articles engage and inform a diverse audience, helping them stay ahead of the technological curve. Possessing a Master's degree in Economics and Management, Nik has a solid grasp of the nuances of the business world and its intersection with emergent technologies.
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Nik is an accomplished analyst and writer at Metaverse Post, specializing in delivering cutting-edge insights into the fast-paced world of technology, with a particular emphasis on AI/ML, XR, VR, on-chain analytics, and blockchain development. His articles engage and inform a diverse audience, helping them stay ahead of the technological curve. Possessing a Master's degree in Economics and Management, Nik has a solid grasp of the nuances of the business world and its intersection with emergent technologies.
