Original Author: Encryption Research Institution Delphi Digital
Original Translator: Leo, Bob, BlockBeats
The founder of Curve Finance, Michael Egorov, has always been a familiar figure in the "borrowing and cashing" world. Egorov often collateralizes CRV and borrows stablecoins on Aave and Frax. However, recently, due to the price drop of CRV and the exploitation of its pool, the price of CRV has plummeted. As of the time of writing, the price of CRV is about $0.5, with a 24-hour decline of over 20%. This has led to a significant increase in the risk of Egorov's CRV collateral being liquidated. Delphi Digital has written an article about "The Impact of Curve Founder's Liquidation Price and CRV Crash on the entire DeFi sector". Here is the translation by BlockBeats:
Yesterday, several Curve Finance pools were exploited, and Curve founder Michael Egorov currently has a loan of about $100 million, backed by 427.5 million CRV (approximately 47% of the total circulating supply of CRV). With CRV falling by 10% in the past 24 hours, Curve's financial health is at risk.
On the Aave lending protocol, Egorov has a $305 million USDT loan supported by 632 million CRV.
With a 55% liquidation threshold, his position would be liquidated when CRV reaches a price of $0.3767 USDT.
Based on the current price of CRV, reaching the liquidation threshold would only require a decrease in the CRV price of about 33%. In addition, Egorov is paying an annual 4% APY for this loan.
On Frax Finance, Egorov currently holds 59 million CRV, corresponding to a $15.8 million FRAX loan.
Although this is much less than his CRV collateral and stablecoin borrowing on Aave, CRV still carries significant risk due to Fraxlend's time-weighted variable interest rate.
According to the current 100% utilization rate, the interest rate will double every 12 hours.
The current interest rate is 81.20%, but it is expected that APY will reach its peak in 3.5 days, nearly 10,000%.
Regardless of how the CRV price changes, this index-like interest rate could eventually lead to his liquidation. With a maximum LTV of 75%, the liquidation price of his position within 4.5 days is $0.517 (CRV), which is only a 10% drop from the current CRV price.
Egorov has tried to reduce his debt and utilization twice, and he has repaid a total of 4 million FRAX (3.5m, 500k) in the past 24 hours. However, the market utilization rate is still at 100%, and users quickly removed liquidity after he repaid.
Given the existing low liquidity, these large-scale risk positions pose a serious concern for the CRV price.
Currently, there is approximately 10 million USD worth of CRV liquidity on-chain, and there is a $370,000 sell order with a depth of -2% on Binance.
The scale of these risk positions could reach eight figures.
Therefore, the CRV price may plummet to extremely low levels, triggering a chain reaction in most areas of the DeFi ecosystem.
Today, Curve founder Michael Egorov deployed a new Curve pool and threshold: a 2-pool consisting of CRV/FRAX LP tokens from crvUSD and Fraxlend, and injected $100,000 worth of CRV incentives into it.
This CRV/FRAX LP token is the same liquidity he borrowed on Fraxlend and represents the greatest risk he faces in potential liquidation.
This is an attempt to encourage liquidity into the lending market in order to reduce utilization rates and mitigate the risk of debt spiraling out of control.
Within 4 hours of launch, the pool has attracted $2 million in liquidity and brought the utilization rate down to 89%^.
We will actively monitor the situation in this thread, so be sure to bookmark it.
Delphi members can get the latest updates through Eason Wu's latest Alpha Feed post, available here.
larry 0x has also put together some charts we'd like to share.
It's worth noting that these charts assume no changes in positions (no additional collateral or debt repayment), no changes in CRV price, and utilization always staying at 100%^.
Interest Rate vs. Time (hours)
Debt (in million USD) vs. Time (hours)
Health Factor vs. Time (hours)
Liquidation Price (in USD) vs. Time (hours)
