- Curve hack triggers CRV sell-off, leading to liquidity crisis.
- CRV Founder’s Fraxlend position faces liquidation, risking more dumps.
- This domino effect could harm other projects like Aave.
Recently, Curve, the decentralized exchange (DEX) platform, faced a massive setback when it fell victim to a hacking incident. The hacker managed to siphon off millions of dollars from Curve, but that was just the beginning of the troubles.
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The founder, Michael Egorov, had taken a substantial loan of $100 million on AAVE to acquire a posh property in Australia for which he used $280 million worth of CRV as collateral. Now with the hack, Egorov is facing a cascade of problems.
As we can see from a tweet above, a crypto journalist paints the butterfly effect for CRV and in extension, AAVE. The post begins by explaining how the hacker is still in possession of around 7 million CRV.
After the hacker initiated a selling spree, CRV prices began to plummet rapidly. This was exacerbated by a ‘stop hunting’ situation. In this case, traders aggressively sell off assets to drive prices lower. Ultimately, this creates a domino effect of dumping.
Still, the post explains a more concerning issue. They say a more pressing issue came up when they noticed the APY on Michael’s Fraxlend position was doubling every 12 hours. At this rate, liquidation loomed large, leading to a potential dump of 59 million CRV tokens into the market. The liquidity was insufficient to handle such a large sell-off, and this could trigger a domino effect as other debt positions tied to Michael would also face liquidation.
Specifically, the post expresses concern over how the fallout will likely extend to other projects as well. For instance, Inverse Finance (INV) and Magic Internet Money (MIM) could be adversely impacted by the accumulation of bad debt. Furthermore, Aave, the lending protocol, could potentially be left with $63 million of bad debt if Michael’s position is liquidated.
While DeFi is often lauded for its decentralization and lack of special rules or bailouts, this incident has raised concerns about the sector’s vulnerabilities and potential risks. The hack and subsequent liquidations could shake investor confidence, slowing down adoption and progress in the DeFi space.
For now, Michael’s position remains a focal point, with its liquidation prices for CRV sitting between $0.38 and $0.40. At the time of reporting, CRV is trading at $0.50, a significant drop from its value a week ago when it reached $0.72.
The incident serves as a reminder of the unforgiving nature of the DeFi ecosystem, governed solely by mathematical algorithms and code. While it demonstrates that DeFi functions as intended without bailouts, it also highlights the need for robust risk management and security measures to safeguard the sector’s stability and reputation.
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