Curve Finance Founder's Debt Raises Liquidation Risks

Curve Finance founder Michael Egorov faces a financial storm, with roughly $100 million in debt backed by 47% of the circulating CRV supply. 

The latest update arrives as the DeFi world grapples with the aftermath of the Curve Finance hack, worth $24 million. The situation has sparked concerns over potential liquidations and risks of a black swan event in the DeFi space. 

According to Delphi Digital, about 305 million CRV back a $63.2 million Tether loan on Aave, and 59 million CRV secure a $15.8 million Frax debt on Frax Finance. The majority of these stemmed from Egorov's loan. The research firm highlights specific risk thresholds that could trigger liquidation.

In addition, DeFillama estimates that the total liquidatable value of the protocol is $117 million, putting the protocol at risk of bad debt if there is not enough liquidity to sell CRV.

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Swift Action to Reduce Debt

In response to the fragile situation, Egorov paid 4 million FRAX within 24 hours to reduce the debt burden. Additionally, he deployed a Curve pool, attracting $2 million in liquidity and reducing the utilization rate from 100% to 89% in a matter of hours.

Nevertheless, the DeFi community's quick response, removing liquidity every time Egorov pays, adds to the complexity.

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CRV Token in Freefall

Within 12 hours of the attack, the CRV token plummeted by 22%. Further declines could trigger liquidations if CRV falls to $0.371, according to DeFi strategist Olimpio. The strategist claims there is no single Exchange or DeFi protocol where such a large amount of CRV can be sold.

Beyond CRV, Egorov's substantial holdings in Frax, Abracadabra, Inverse, Convex, and Silo all hang on the brink of liquidation, further fueling concerns about the potential fallout. The crvUSD stablecoin's future is also uncertain, given the risky nature of these holdings for minting purposes.

The total volume locked in Curve before the attack was $3.75 billion over 12 chains. However, it has now dropped to $2.09 billion. Curve Finance protocol houses a significant portion of the whole DeFi TVL, and if TVL continues to decline, it can cause chaos across the entire DeFi ecosystem. 

According to some community members, the recent event is a "black eye for the industry" that could set it back a few years and discourage those considering entering the field.