2023-06-18 12:01:01
Over the past few days, the DeFi community has been buzzing with news that which are regarding highly leveraged exposure of major lending protocols in CRV tokens. The main focus is on a wallet linked to Michael Egorov, the founder of the decentralized stock exchange Curve Finance. As of June 16, this wallet has $60 million in debt in stablecoins backed by $176 million worth of CRV tokens. Egorov deposited CRV tokens on Aave’s platform.
Could Aave be in trouble because of Egorov?
Aave is the largest lending protocol in the DeFi ecosystem, with nearly $8 billion in total pledged value on the protocol. There is nothing to worry regarding at the moment, as Egorov is managing his debt, but a risk management company, Gauntlet, has called on Aave to freeze the CRV market on the Aave V2. This is to prevent additional CRV tokens from being placed as collateral. Concerns regarding the exposure of CRV tokens have increased because the price of the token has lost more than 30% of its value due to the downturn already affecting the altcoin market. According to Gauntlet, Aave is taking on bad debt on its platform with the CRV exposure.
We can talk regarding this when, say, the price of CRV falls so low that the Aave protocol has to close Egorov’s position. You just won’t be able to do that simply because of the quantity. The problem is that Egorov’s deposited CRV tokens are more than 33% of the total supply. If this entire position is to be closed, the liquidator Aave will not be able to sell the CRV tokens at a profit. Now, if someone went to the market with 100 million CRV tokens representing a third of Egorov’s position to sell, the price of the token would lose 70% of its value. There are also opinions that do not agree with Gauntlet, according to which Egorov does not want to stop paying off his debt. Not least because Egorov has always handled his positions properly so far.
The opinion of Silo Finance
According to the founder of Silo Finance, some traders are taking advantage of the Gauntlet narrative to manipulate the price of CRV and play short on Binance. Silo cannot take over Egorov’s entire Aave V2 position, because it simply does not have enough USDT liquidity. In addition to Aave, Egorov has more than $10 million worth of secured borrowing positions with credit protocols Frax Finance and Abracadabra. Let’s also add that the Gauntlet’s concerns probably stem from the CRV manipulation carried out by Avraham Eisenberg last year. Then Eisenberg manipulated the price of CRV by borrowing CRV in exchange for USDC collateral. There is now an SEC proceeding once morest him.
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