Fears of contagion would have spread like wildfire if CRV price got any closer to $0.368 per coin. Image courtesy of TradingView
This itself posed another risk for Curve.fi (CRV) and the broader DeFi ecosystem, which is interconnected via liquidity pools. In addition to the Vyper programming language used for other DeFi protocols, Curve founder Michael Egorov is significantly indebted with CRV tokens.
At around $80 million, Egorov’s debt accounted for about 47% of existing CRV supply. Because liquidity pools have a utilization rate, which is the percentage of total liquidity in the loan pool compared to the amount borrowed, Egorov’s interest rate skyrocketed, threatening forced liquidation and Curve.fi’s stability.
Still, as evidenced by the stabilization in CRV price after Tuesday’s sharp drop, a Curve bailout is in the works. The CRV buying pressure generated is a bailout for one of the largest decentralized stablecoin exchanges, holding $2.7 billion in assets.
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DeFi’s Lehman Brothers moment, Lite mode
When Lehman Brothers collapsed in 2008, the investment bank had $619 billion in debt against $639 billion in assets, many of which were too illiquid to service the debt promptly. This eventually triggered the global financial crisis of 2008.
While Curve.fi’s domino effect, from being an exploit to severely compromising the founder, is large enough to pose systemic risk, it is small. After all, Egorov’s loan secured by CRV tokens is just 3% of Curve.fi’s TVL. According to @EmberCN, Egorov has sold 34 million CRV tokens to four major companies.
Wintermute is the largest rescue service provider and has bought 25 million CRV. Founded by Ilya Volkov in London, Wintermute is a prolific DeFi investor and liquidity provider for exchanges.
Wintermute was followed by other well-known investors who were involved in the success of DeFi. DWF Labs, a global market maker, and Gnosis Chain (xDai), an Ethereum sidechain specialized in prediction markets.
The DeFi scene is coming together to provide liquidity for Egorov’s CRV sales
Likewise, Yearn Finance and Cream Finance are lending protocols that make heavy use of Curve.fi’s stablecoin liquidity pools. Suffice it to say that all public investors building the CRV buying wall have a vested interest in ensuring that Egorov’s potential contagion is neutralized.
Immediately after the CRV price drop, Egorov handed over 5 million CRV to controversial Tron founder Justin Sun. Other notable individual investors include Jeffrey Huang, an NFT trader with 3.75 million CRV, and crypto trader DCFGod with 4.25 million CRV.
In addition to a total of 72 million CRV at $0.40 per coin, Egorov also recovered 15.8 million USDT stablecoin after redeeming 7.52 million MIM on Abracadabra and 6.1 million USDT on Aave, both lending protocols . Most Curve bailouts have been over the counter (OTC).
In total, Michael Egorov managed to sell 106 million CRV tokens for $42.41 million, leaving him with an outstanding debt of $65.34 million, according to Lookonchain analysis. Interestingly, much of the debt went to buying not just one, but two Victorian mansions in Australia, the Australian Financial Review previously reported.
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