Michael Egorov, the founder of decentralized exchange (DEX) and automated market maker protocol Curve, has repaid $1.35 million of a loan on the decentralized lending platform, Aave. Egorov made the move as Curve’s native token (CRV), which was used as the loan’s collateral, declined significantly in the past week, reducing the loan’s health factor and increasing the liquidation risk.
Egorov began borrowing stablecoins on Aave in April and deposited 288.7 million CRV tokens worth $173 million on Aave to borrow about 64 million USDT in an open position. The CRV tokens represent approximately 34% of the asset’s total supply. However, the open position’s health rate decreased from 1.68 to 1.58 due to the declining value of CRV, which has fallen more than 20% in the past seven days.
If the health rate drops below 1.00, the collateral will be automatically liquidated. Therefore, Egorov returned some USDT tokens to curb the liquidation risk. The high CRV stake involved in the loan has caught the attention of the decentralized finance (DeFi) community, as it may lead to significant selling pressure on the asset, increasing the risk of platform liquidation.
Gauntlet Proposes Freezing CRV Tokens Used as Collateral on Aave
Gauntlet, an entity that manages DeFi risk, has submitted a proposal to the Aave community, suggesting that all CRV tokens used as collateral on the V2 platform be frozen, and the loan-to-value (LTV) ratio for CRV be set to 0. This is to prevent the account linked to Egorov from adding more CRV as collateral to increase concentration risk and minimize the possibility of accruing bad debt.
The Curve-Aave loan fiasco has caused USDT to slip slightly from its 1:1 peg with the USD. While whales and investors are taking arbitrage opportunities to swap the assets for USDC and DAI, Tether CTO Paul Ardoino has assured the community that the company is ready for any amount of redemptions.
In summary, Michael Egorov, the founder of decentralized exchange Curve, has reduced his on-chain debt by repaying $1.35 million of a loan on the decentralized lending platform, Aave. The decline in Curve’s native token (CRV) caused the loan’s health factor to decrease, increasing liquidation risk. Gauntlet has proposed freezing CRV tokens used as collateral to prevent further concentration risk. The loan fiasco has caused USDT to slip slightly from its 1:1 peg with the USD.