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• The recent vulnerability discovered in the DeFi giant, Curve Finance, has resulted in a significant drop in the price of its CRV token, jeopardizing founder Michael Egorov's substantial $168 million investment, which is now at risk of liquidation.
• That scenario could lead to increased pressure within the DeFi ecosystem, as confiscated assets would need to be liquidated in a market already experiencing declining prices.

 

The turmoil within Curve Finance has significantly heightened the vulnerability of founder Michael Egorov's $168 million lending position, making the possibility of liquidation an imminent threat. Should this event materialize, it has the potential to create far-reaching ramifications throughout the decentralized finance (DeFi) ecosystem.

Egorov's DeFi ventures reveal an impressive position, as blockchain analytics on DeBank showcase holdings of $168 million in CRV, Curve's native token. This remarkable sum serves as collateral for loans sourced from multiple DeFi protocols, standing tall at almost 34% of the token's overall market capitalization.

After a recent exploit at Curve over the weekend, the price of CRV has plummeted by over 20%, significantly increasing the risk of Egorov facing liquidation.

Curve, a crucial component of the DeFi economy, faces yet another severe setback if a forced liquidation occurs. This would come as a double blow following a significant exploit that resulted in the loss of approximately $70 million worth of assets for its users. As a precautionary measure, numerous investors have already withdrawn their funds, causing the total value of assets locked on Curve to plummet from $3.7 billion to $2.1 billion.

Due to the intricate interconnection of DeFi, should Egorov's position be liquidated, it may exert considerable strain not only on other decentralized lending protocols but also on the price of CRV (Curve DAO Token). CRV holds a crucial role as a systemically important asset, serving as a trading pair and stabilizing element in trading pools throughout DeFi, including prominent platforms like Sushi and Uniswap. Furthermore, CRV is widely accepted as collateral on the loan-making platform Aave, making it a favored choice among DeFi participants.

Egorov has securely locked away approximately $168 million worth of CRV tokens on the Aave platform in order to obtain a loan of $63 million denominated in Tether's USDT stablecoin. As per DefiLlama data, the liquidation threshold for Egorov's CRV collateral is set at 37 cents, whereas the current market trading price for CRV stands at approximately 55 cents.

Egorov utilized $32 million worth of CRV as collateral on the stablecoin issuer Fraxlend to borrow $17 million of the FRAX stablecoin. Over the last few hours, Egorov has executed multiple transactions to begin repaying a portion of the borrowed capital on Fraxlend, as reported by DeBank. Additionally, he currently holds an $18 million loan on the decentralized platform Abracadabra.

Egorov has been bolstering his capital this afternoon by selling LDO, the governance token for the prominent liquid staking platform Lido, in multiple batches worth between $10,000 and $50,000 each. These transactions were conducted using Circle's USDC stablecoin, as recorded on Etherscan.

The situation surrounding Egorov's CRV borrow position has sparked questions within crypto investing circles, irrespective of whether it is liquidated or not. Many are curious about how a single individual could borrow such a significant portion of a "blue chip" crypto token's supply.

Furthermore, the recent developments have sparked inquiries within decentralized lending protocols such as Aave regarding the necessity of implementing safeguards to restrict substantial positions like Egorov's, which could potentially pose systemic risks.

Based on Coinglass data, CRV experienced a total of $3.03 million in liquidations in the last 24 hours, placing it behind BTC and ETH.

The CRV was introduced with no premine, meaning that there were no tokens reserved for founders and employees. Instead, the initial distribution was mainly focused on providing tokens to liquidity providers on the platform.

In 2020, Egorov faced significant criticism when he acquired over two-thirds of veCRV, a distinct Curve voting token utilized for voting and proposing changes within CurveDAO. This move was met with widespread disapproval due to concerns of centralization. However, Egorov later expressed remorse for his actions, clarifying that it was an "overreaction" driven by the perception of a potential takeover attempt by a competing platform, Yearn.Finance.

Gauntlet, a risk management firm that detected Egorov's substantial CRV loans on Aave as early as January, advised back then to suspend trading in the CRV market on Aave V2 as a precautionary measure to minimize the likelihood of a meltdown similar to what occurred on Monday. There are signs that Egorov actively managed his considerable position in the past, even making partial repayments on the debt at times.