“Is Michael Egorov’s $100 Million position a risk to Curve Finance and DeFi?”
"Is Michael Egorov's $100 Million position a risk to Curve Finance and DeFi?"
The Instability of the Decentralized Finance (DeFi) Ecosystem Raises Concerns
In the vibrant and fast-paced world of Decentralized Finance (DeFi), recent events have sparked genuine concerns about the stability of the decentralized exchange ecosystem. Specifically, the exploit of Curve Finance pools has raised questions about the platform’s founder, Michael Egorov, and his $100 million loan positions.
These loan positions have captured significant attention as they are backed by approximately 47% of the entire circulating supply of the Curve token (CRV). With the price of CRV experiencing a decline, these debts are now at risk of liquidation, unsettling not only the Curve protocol but also CRV investors and the wider DeFi space.
A Breakdown of Michael Egorov’s $100 Million Loan
Delphi Digital, a reputable crypto research firm, released a report detailing the loan positions held by Michael Egorov on Tuesday, August 1. According to the report, Egorov has loans totaling $100 million across various lending protocols, with 427.5 million CRV tokens backing these positions.
One of Egorov’s loan positions involves a 63.2 million USDT loan backed by 305 million CRV tokens on Aave. The report reveals that this position has a liquidation threshold of 55% and can be liquidated at a rate of 0.3767 CRV/USDT.
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To put this into perspective, the current trading price of CRV is $0.608595. Consequently, if the CRV price declines by 38%, Egorov’s position on the Aave protocol is likely to be liquidated.
Additionally, Egorov has 59 million CRV tokens collateralizing a loan of 15.8 million FRAX on Frax Finance. Although this debt is lower in value compared to his Aave position, it poses a higher risk to CRV holders due to Fraxlend’s Time-Weighted Variable Interest Rate.
The report highlights that the liquidation of the Frax loan position can occur irrespective of CRV’s price. Currently operating at full utilization, the interest rate on this loan doubles every 12 hours. While the current interest rate stands at 81.20%, there is a possibility for it to surge to a maximum of approximately 10,000% Annual Percentage Yield (APY) in just 3.5 days. Such inflated interest rates significantly increase the likelihood of debt liquidation.
How Has the Curve Finance Founder Responded?
In response to the mounting concerns and to stabilize his loan positions and utilization rates, Michael Egorov has taken some measures. On July 31st, he repaid a total of 4 million FRAX, but despite this effort, the utilization rate remained at 100%. Users swiftly removed liquidity as soon as Egorov made the payment, nullifying its impact.
To address this issue, the Curve founder deployed a new Curve pool on Tuesday, August 1. This pool is composed of crvUSD stablecoins and Fraxlend’s CRV/FRAX LP token. To incentivize liquidity towards the lending market and reduce the utilization rates, Egorov seeded this pool with 100,000 CRV rewards.
According to Delphi Digital, within four hours of its launch, this new pool attracted $2 million in liquidity, resulting in a decrease in the utilization rate to 89%. This initiative aims to alleviate the liquidation risks associated with Egorov’s loan positions and restore confidence in the Curve Finance ecosystem.
The recent exploit of Curve Finance pools has brought the stability of the DeFi ecosystem into question. With Michael Egorov’s substantial loan positions backed by a significant portion of CRV circulating supply at risk of liquidation, concerns about the overall health of the Curve protocol and the DeFi space have escalated.
Nevertheless, the response from Egorov, including repayment efforts and the deployment of a new Curve pool to encourage liquidity, demonstrates a commitment to address the challenges and mitigate potential risks. As the DeFi landscape evolves, continued vigilance, proactive measures, and innovative solutions are crucial to ensure the long-term stability and growth of the blockchain industry.