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Following the recent exploit of Curve Finance pools, there have been genuine concerns about the stability of the decentralized exchange and the Decentralized Finance (DeFi) ecosystem. A new report has emerged, raising questions about Curve founder Michael Egorov’s $100 million loan positions.
These positions have garnered significant interest, as they are backed by about 47% of the entire $CRV circulating supply. With the price of $CRV dwindling, these debts appear to be at risk of liquidation, putting the Curve protocol, $CRV investors, and the overall DeFi space on edge.
A Breakdown Of Michael Egorov’s $100 Million Loan
On Tuesday, August 1, crypto research firm Delphi Digital released a series of tweets, detailing the loan positions being held by Michael Egorov. According to the report, the Curve Finance founder has around $100 million in loans across various lending protocols backed by 427.5 million $CRV tokens.
Egorov has a 63.2 million $USDT loan backed by 305 million $CRV tokens on Aave. Delphi Digital revealed that the position has a liquidation threshold of 55% and is eligible for liquidation at 0.3767 $CRV/$USDT.
For context, the $CRV currently trades at $0.608595, according to CoinGecko data. This means that a 38% price decline will cause a liquidation of Egorov’s position on the Aave protocol.
Meanwhile, the Curve founder has 59 million $CRV backing a loan of 15.8 million $FRAX on Frax Finance. Although this debt is much lower than his Aave position, it poses a much more significant risk to $CRV due to Fraxlend’s Time-Weighted Variable Interest Rate.
Delphi Digital also noted that liquidation of the Frax loan position can occur regardless of $CRV’s price. According to the research firm, the loan is currently at 100% utilization, which allows the interest rate to double every 12 hours.
While the interest rate currently stands at 81.20%, Delphi Digital said that it can potentially increase to the maximum of about 10,000% APY in 3.5 days. This high-interest rate could result in the eventual liquidation of the debt.
CRVUSDT trading at $0.598 | Source: daily CRVUSDT chart from TradingView
How Has The Curve Finance Founder Responded?
So far, Michael Egorov has tried to stabilize his positions and the utilization rate twice, repaying a total of 4 million $FRAX on July 31st. However, the utilization rate remained at 100%, as users swiftly remove liquidity as soon as he makes the payment.
To address this, the Curve founder deployed a new Curve pool on Tuesday, August 1. This pool consists of stablecoin crvUSD and Fraxlend’s $CRV/$FRAX LP token, seeded with 100,000 $CRV rewards.
This is to incentivize liquidity toward the lending market, decrease the utilization rates, and ultimately reduce the liquidation risks.
According to Delphi Digital, this pool attracted $2 million in liquidity and lowered the utilization rate to 89% four hours after launch.