Post-incident, it is reported that over $45 million has been drained from liquidity pools of third-party providers, with an additional $25 million directly siphoned from the Curve Protocol’s CRV\/ETH pool. The ensuing liquidity crisis and the impending risk of further sell-offs, given the millions of Curve (CRV) tokens still held by the attackers, is generating substantial anxiety within the market.<\/p>\n
The founder of Curve Finance, Michael Egorov, has not been immune to these significant losses. His large positions backed by CRV have come under intense pressure, pushing the platform to the brink. Delphi Digital explains<\/a>, “Curve founder, Michael Egorov, currently has a ~$100 million loan backed by 427.5 million CRV (about 47% of the entire CRV circulating supply). With CRV down 10% over the past 24 hours, the health of Curve is in jeopardy.”<\/p>\n Furthermore, Egorov holds large loans on Aave and Frax Finance, backed by CRV collateral. On Aave, he has a $305 million CRV backed loan amounting to 63.2 million USDT. At a liquidation threshold of 55%, his position could be liquidated if CRV\/USDT hits $0.3767. As per Delphi Digital’s assessment, this would require a ~33% drop in the CRV price. Egorov also carries a ~4% APY for this loan.<\/p>\n The situation on Frax Finance is even more precarious. Here, Egorov has supplied 59 million CRV against 15.8 million FRAX of debt. The high utilization and the Time-Weighted Variable Interest Rate, doubling every 12 hours, makes his position particularly vulnerable to astronomical interest rates and subsequent liquidation, irrespective of the CRV price.<\/p>\n Delphi Digital emphasizes, “This astronomical interest rate could lead to his eventual liquidation, regardless of CRV price. At a max LTV of 75%, his position\u2019s liquidation price could reach 0.517 CRV\/FRAX within 4.5 days, less than a 10% decrease from current prices.”<\/p>\n Today, Egorov deployed a new Curve pool and gauge: a 2 pool consisting of crvUSD & Fraxlend\u2019s CRV\/FRAX LP token, seeded with 100,000 of CRV rewards. However, with no success. Utilization was quickly back<\/a> to 100% as illiquid CRV holders took Frax stables to exit, and Frax lenders bailed on risky pool. Thus, Egorov’s new pool is just spending more of his CRV and not bringing his interest rate down.<\/p>\n As the market grapples with the mounting liquidation risk of Egorov’s positions, the potential market-wide repercussions are alarming. Autism Capital warns<\/a>, “If Michael gets liquidated by Fraxlend, all of his other debt positions will be liquidated too. This likely means Inverse Finance (INV) and Magic Internet Money (MIM) will both die due to the new bad debt, and Aave will get stuck with $63 million of bad debt.” Moreover, a liquidation of Egorov will likely trigger cascades on-chain and nuke CRV to almost zero.<\/p>\n However, despite the ensuing chaos, the DeFi sector’s operations, strictly governed by code and math, remain unaffected. As Autism Capital rightly puts it, “In one sense, this is proof that DeFi works as intended. There are no special rules or bailouts, no matter who you are. It\u2019s a brutal free market governed by math and code.”<\/p>\n Moreover, there\u2019s still hope for a happy-end. Assuming liquidity recovers, the DeFi sector might regain balance. The Curve team has indicated that several millions in US dollars are in possession of white-hat hackers. This could potentially enable the recovery of some of the misappropriated assets. Additionally, some bots intercepted a significant quantity of CRV tokens from the Curve attackers.<\/p>\n Nevertheless, the threat of the situation spreading remains a serious concern. Platforms like Frax, Aave and others remain on high alert, while some, like Alchemix, have already halted their smart contracts.<\/p>\n [UPDATE]<\/p>\n It looks like Egorov got an OTC deal with a CEX, paying off his debt. This is the reason for CRV’s price rebound.<\/p>\n About to drop to $13M loaned.<\/p>\n The money is definitely coming from an OTC deal.<\/p>\n It looks like a handshake deal. He\u2019s selling his CRV at 0.4<\/p>\n \ud83d\udea82.5M crv for 1M usdt clips<\/p>\n Which one of you chads got the sick deal? I assume this will go until entire debt paid off. pic.twitter.com\/3c5OmcQ7wH<\/a><\/p>\n \u2014 Midas: Fool’s Gold (@MidasFoolsGold) August 1, 2023<\/a><\/p><\/blockquote>\n [UPDATE #2]<\/p>\n According to Lookonchain, Curve founder Michael Egorov sold<\/a> 5 million CRV to Justin Sun via OTC transactions at a price of $0.4. In addition to Sun, there are 7 addresses that conducted OTC transactions with Michael Egorov for $0.4. 0xSifu, the former CFO of Frog Nation, said that he was also contacted for OTC trading and had a 6-month lock-up period.<\/p>\nNot All Hope Is Lost<\/h2>\n
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