Curve is one of the most interesting DeFi projects to me. They are one of the oldest Decentralized Finance protocols in the industry and have managed to attract over $3B in TVL - making them also one of the largest protocols in the industry.
Yesterday, I wrote a post talking about Curve and the attack that happened due to a Vyper vulnerability in some of the Curve pools. $75M was stolen, $25M turned out to be white hacks and was returned. ~$52M was the final figure of what was unrecoverable.
At the time of the hack, the Curve protocol had $3.7B. It then dropped to $2.1B as people withdrew in fear.
That hack was not the worst news for Curve... Their native token - CRV - started to tank post-hack. This was partly due to the hackers stealing 7.19M CRV (worth $4.52 Million USD) and partly due to concerns/fears of both the protocol and the founder's massive Aave loans.
This has been an ongoing story for months now - the founder of Curve - Michael Egorov - has over $168M in CRV tokens that he's using on a multitude of platforms as collateral for DeFi loans.
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$168M In Collateral for CRV Tokens
The team stake he has is sitting on all these DeFi platforms as collateral. We all know how DeFi loans work - if the value of the collateral drops below the predetermined LTV - Loan to Value - ratio, then the position is liquidated.
Being that the amount of CRV the founder of Curve has locked away is 34% of the market cap, this is dangerous af for Curve.
In my opinion, one of the biggest risks to Curve is the centralization of its founder's stake which is being used as collateral.
It's also a huge risk to the entire DeFi industry... You've got one guy who, if he blows up, will drag Billions of dollars in capital along with him.
He will create bad debt for Aave and pretty much every other major DeFi lender out there. It's a huge risk and it hinges on one dude. I'm not a huge fan of this.
Justin Sun Buys CRV
Egorov sold CRV tokens - to the tune of $20M - just 1 day after the hack of a few Curve pools. He used this capital to pay back some of his loans and reduce his risk of blowing up and getting liquidated.
Notable amongst the list of people who bought CRV from Egorov is Justin Sun - a person who pretty much everyone in crypto dislikes.
All-in-all, Egorov sold $20m CRV for $0.40 per token (it's currently trading at $0.60).
5M of that CRV was bought by Justin Sun for $2M USDT (a $1M discount from market price).
CRV has a governance structure. That being said, I don't believe 5M CRV will allow Justin to unilaterally do anything.
We also know that Justin has a history of taking over chains and protocols when it is to his advantage. Should we expect that Justin is making a play here?
I see several risks for Curve. It's not just about governance.
If someone like Justin gets enough CRV, he could potentially squeeze Michael Egorov's massive loan positions across DeFi..
Imagine if you had billions of dollars and you saw the opportunity to short CRV and the entire DeFi sector. All you had to do was have enough capital to soak up the required CRV to dump the price below $0.372 (Egorov's Liquidation Price) and then you could literally make hundreds of Millions in profit by squeezing the industry.
Would Sun do it? I sure think so.
5M CRV won't be enough but if he keeps buying, I would start getting concerned.
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