The tanking price of the Curve DAO Token (CRV) following the recent Curve Finance exploits is threatening to liquidate approximately $100 million in loans taken by the DeFi protocol’s founder Michael Egorov. The liquidation of the loans poses a threat to the broader DeFi space.
Michael Egorov’s loans are backed by more than 427 million CRV, which represents 47% of the token’s circulating supply. Therefore, liquidation of the loans would be catastrophic for CRV holders, as well as other stakeholders in the DeFi market. CRV has already lost more than 13% of its value since the initial exploit that occurred over the weekend.
Crypto research firm Delphi Digital took to Twitter earlier today to highlight Michael Egorov’s debt:
1/ Yesterday, several @CurveFinance pools were exploited.
— Delphi Digital (@Delphi_Digital) August 1, 2023
Curve founder, Michael Egorov, currently has a ~$100M loan backed by 427.5m $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. 🧵⬇️ pic.twitter.com/EKpQCkDs6W
Michael Egorov has posted a collateral of 305 million CRV on Aava to draw a loan of 63.2 million USDT at an annual percentage yield (APY) of 4%. The debt has a liquidation threshold of 55%, meaning that the loan will be liquidated if CRV’s price sinks to $0.37. With CRV currently trading at $0.60, only a 37% drop would be required to trigger liquidation.
Similarly, the Curve Finance founder has taken a loan of 15.8 million FRAX from Frax Finance in exchange for 59 million CRV. While the debt value and collateral are comparatively less here, Fraxlend’s time-weighted variable interest rate makes it a larger risk for CRV. Given that the debt utilization is currently at 100%, the interest rate is set to double every 12 hours. At this pace, the interest that is currently at 81.2% could skyrocket to a whopping 10,000% in less than 4 days.
Egorov has already taken steps to lower the debt and the utilization rate. Meanwhile, market makers on the crypto exchange Binance have lined up to assist Curve Finance. Tron founder Justin Sun has also stepped in to rescue the Curve DAO Token by purchasing nearly 5 million CRV at an average price of $0.4 which is well above the liquidation price of $0.37.
