A vulnerability on certain Curve stablepools using Vyper contracts led to a $50 million hack on Monday, with the price of the protocol’s native token CRV dropping 20% to $0.58. The following day, the CRV selloff continued and the token’s price fell to a seven-month low of $0.48.
This put Curve Finance founder Michael Egorov’s $100 million borrowing position against his CRV tokens at risk of liquidation, the ramifications of which could potentially be felt throughout the entire DeFi ecosystem.
Autism Capital noted that the hacker has around 7 million CRV in his wallet, which, by itself, wouldn’t be enough to trigger a massive decline.
“The REAL problem is that everybody knows Michael’s in trouble, and this is creating a reflexive feedback loop of dumping as people stop hunting Michael’s CRV position,” they noted.
A significant portion of Egorov’s debt is a $70 million loan on decentralized lending protocol Aave, collateralized by 34% of CRV’s circulating supply. Another big position was $15 million worth of FRAX debt on Fraxlend collateralized by 59 million CRV tokens.
“Though this is much less CRV collateral and stablecoin debt than his Aave position, it poses a larger risk to CRV due to Fraxlend’s Time-Weighted Variable Interest Rate,” noted crypto research firm Delphi Digital.
4/ At 100% utilization, which it is currently at, the interest rate will double every 12* hours.
The current interest rate is 81.20%, but can be expected to increase to the maximum of nearly 10,000% APY after just 3.5 days. pic.twitter.com/Y1LVnBL3JO
— Delphi Digital (@Delphi_Digital) August 1, 2023
On-chain data shows that Egorov has been repaying parts of his loan in an effort to protect his position. To do this without crashing CRV’s price on the market, he sold 39.25 million CRV to market participants through over-the-counter (OTC) deals.
More and more institutions and investors bought $CRV via OTC!
— Lookonchain (@lookonchain) August 1, 2023
Egorov appears to have raised more than $15 million in liquidity from stablecoin sales through these OTC trades. The buyers bought CRV at a 25% discount to its market value in a handshake agreement, the terms of which involve a three to six-month lockup on the tokens.
“Having paid down some of his loans, Egorov has managed to significantly reduce his liquidation price points. Note on his Fraxlend position: Utilization has fallen to 37% so the APY should continue to decline,” said Delphi Digital in an update.