Curve Finance, a prominent decentralized exchange renowned for its liquidity and cost-effectiveness, has faced significant challenges recently. The platform has gained attention for unfavorable reasons. On July 30, it suffered exploits worth over $47 million due to a Vyper reentrancy lock malfunction. Making use of this vulnerability, attackers managed to withdraw funds from multiple stablecoin pools on Curve Finance without having to provide the necessary collateral.
The value of CRV, the native token of Curve Finance, experienced a sharp decline, dropping from about $0.73 to $0.62 following this incident. Concurrently, it was revealed that Michael Egorov, the founder of Curve Finance, had taken loans backed by 47% of the circulating CRV supply. Delphi Digital, a research firm, estimated that Egorov holds loans totaling around $100 million across different lending protocols, all secured by 427.5 million CRV tokens.
Furthermore, Delphi Digital reported that Egorov has taken loans from multiple lending protocols. Notably, he has used 305 million CRV as collateral for a 63.2 million Tether loan on Aave and 59 million CRV as collateral for a 15.8 million Frax debt on Frax Finance.
Furthermore, the research firm emphasizes particular risk thresholds that, if attained, could potentially result in the liquidation of these positions. When the liquidation threshold reaches 55%, the position becomes eligible for liquidation at a CRV price of $0.3767. At press time, CRV was trading at $0.5951 with a 6.93% daily drop.
The liquidation of such a significant position could potentially create stress on other DeFi protocols. This is because CRV plays a crucial role as a trading pair and stabilizing asset in various trading pools across the ecosystem.
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Does Curve Finance have everything under control?
Egorov took decisive action to address the situation. He chose to reduce the debt and utilization rate. He did so by making a payment of 4 million FRAX within the last 24 hours. However, concerns arose about users rapidly withdrawing liquidity once these payments were made. To counter, he implemented a Curve pool to encourage liquidity flow into the lending market. Remarkably, within just four hours of its launch, the pool attracted $2 million in liquidity. This further led to a reduction in the utilization rate from 100% to 89%.
Numerous individuals were observed providing assistance. Justin Sun, the founder of the Tron blockchain, showed his support for Curve Finance. According to blockchain sleuth Lookonchain, Sun acquired nearly 5 million CRV tokens from a wallet labeled “Curve.fi Founder” in an over-the-counter transaction. This was done at an average price of $0.4 per token. The transaction amounted to just over $2.3 million.
Additional entities, such as Machi Big Brother, DWF Labs, and Cream.Finance, also made notable purchases of CRV tokens. Machi Big Brother acquired 3.75 million CRV, and DWF Labs obtained 2.5 million CRV and Cream.Finance procured 2.5 million CRV.
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