Curve Finance founder’s $100M debt could trigger a DeFi implosion: Report

While Curve Finance is still weathering the aftermath of a recent $47-million hack, another issue concerning holders of the decentralized finance (DeFi) protocol’s token has surfaced on the internet, sparking theories on how a massive dump can potentially happen.

On Aug. 1, crypto research firm Delphi Digital published a Twitter thread detailing the loans taken by Curve Finance founder Michael Egorov that are backed by 47% of the circulating supply of Curve DAO (CRV). According to the research firm, Egorov has around $100 million in loans across various lending protocols backed by 427.5 million CRV.

1/ Yesterday, several @CurveFinance pools were exploited.

Curve founder, Michael Egorov, currently has a ~$100M loan backed by 427.5m $CRV (about 47% of the entire CRV circulating supply).

With $CRV down 10% over the past 24 hours, the health of Curve is in jeopardy. ⬇️ pic.twitter.com/EKpQCkDs6W

— Delphi Digital (@Delphi_Digital) August 1, 2023

On Aave, Egorov has 305 million CRV backing a 63.2-million Tether (USDT) loan. Delphi Digital noted that, at a liquidation threshold of 55%, the position is eligible to be liquidated at $0.3767. At the time of writing, CRV is trading at around $0.5975. This means that a 36% drop could potentially trigger a liquidation.

On Frax Finance, Egorov has 59 million CRV backing a debt of 15.8 million Frax (FRAX). While the amount is lower, Fraxlend’s time-weighted variable interest rate makes the loan more risky. The loan is currently at 100% utilization, and because of this, the interest rate for the loan doubles every 12 hours. While the interest rate is only 81.2%, Delphi Digital said that it can go up to 10,000% in just 3.5 days. This can lead to liquidation regardless of the price of the CRV token.

Recognizing the risks, Egorov has already made moves to lower the debt and utilization rate by paying a total of 4 million FRAX in the last 24 hours. However, as soon as Egorov pays, users are quick to remove liquidity.

To combat this, Egorov deployed a Curve pool to incentivize liquidity toward the lending market. The pool gained $2 million in liquidity just four hours after its launch and decreased the utilization rate from 100% to 89%.

pic.twitter.com/UWKVYZO9gn

— Chago0x (@chago0x) July 31, 2023

Various community members commented on the situation, with some comparing it to FTX founder Sam Bankman-Fried using FTX Token (FTT) as collateral, while others are describing it as a “black eye for the industry” that could set the industry back by a few years and spooking those who were considering dipping their toes in DeFi.

Cointelegraph reached out to Egorov but did not get an immediate response.

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