Chaos at Curve Finance has put a $168 million lending position held by founder Michael Egorov at greater risk of liquidation, an event that – if it happens – could have giant implications across decentralized finance (DeFi).
The recent exploit at Curve Finance has caused the price of its native token, CRV, to sink more than 20%, putting Egorov closer to levels where he’d get liquidated. If his position is liquidated, it could put pressure on other decentralized lending protocols as well as CRV’s price. CRV is a popular form of collateral on loan-making platform Aave, and Egorov has $168 million of it securing loans from multiple DeFi protocols.
Egorov has taken out a $63 million loan in Tether’s USDT stablecoin and a $17 million loan of the FRAX stablecoin using $32 million of CRV as collateral on stablecoin issuer Fraxlend. He also has a $18 million loan on decentralized platform Abracadabra. In the past few hours, Egorov has made several transactions to repay some of the capital he borrowed on Fraxlend.
The situation has raised questions in crypto investing circles around how a single person was able to lend so much of a blue chip crypto token’s supply, and whether decentralized lending protocols should implement safeguards to limit large positions like Egorov’s that have the potential to introduce systemic risk.
CRV has had $3.03 million in total liquidations in the past 24 hours, trailing behind BTC and ETH. CRV was launched without a premine and initially set to be distributed primarily to liquidity providers on the platform.
Gauntlet, a risk management firm, recommended freezing the CRV market on Aave V2 to mitigate the chances of a meltdown happening like it did on Monday. There are indications that Egorov actively managed his sizable position in the past, including at times paying down portions of the debt.