Recent Concerns Arise over Curve Finance Founder’s $100 Million Loan Positions

Recent events surrounding Curve Finance have called into question the stability of the decentralized exchange and the DeFi ecosystem at large. In particular, Curve founder Michael Egorov’s $100 million loan positions raise concerns.

According to a report by crypto research firm Delphi Digital, Michael Egorov has about $100 million in loans backed by 427.5 million CRV tokens. These $100 million credit positions account for about 47% of the total circulating CRV supply. With CRV price falling, there is a risk that this debt will be liquidated, putting both the Curve protocol, CRV investors and the entire DeFi space at risk.

A detailed breakdown of the loan positions shows that Egorov has a 63.2 million USDT loan backed by 305 million CRV tokens on Aave. The liquidation threshold for this position is 55% and liquidation threatens when the CRV price hits 0.3767 CRV/USDT. However, CRV is currently trading at $0.608595, so a 38% drop in price would result in liquidation.

In addition to his Aave loan, Egorov has 59 million CRV backing a 15.8 million FRAX loan with Frax Finance. While this debt is lower than the Aave position, it carries a higher risk to CRV due to Fraxlend’s time-weighted floating rate. Delphi Digital notes that the liquidation of the Frax loan position can occur independently of the CRV price. Currently, the loan is 100% utilized and the interest rate doubles every 12 hours. Currently, the interest rate is 81.20%, but it could rise to the high of around 10,000% APY within 3.5 days. Such a high interest rate could eventually lead to the liquidation of the debt.

In response to these developments, Michael Egorov tried to stabilize his positions by repaying 4 million FRAX. However, utilization remained at 100% as liquidity was withdrawn quickly as soon as the payment was made. To address this issue, Egorov deployed a new curve pool consisting of crvUSD stablecoin and Fraxlend’s CRV/FRAX LP token. This pool incentivizes liquidity in the credit market, lowering utilization rates and ultimately reducing liquidation risks. According to Delphi Digital, this pool has already attracted $2 million in liquidity and reduced utilization rates to 89% four hours after launch.

It remains to be seen how the situation will develop around Michael Egorov’s credit positions and the general stability of Curve Finance and the DeFi ecosystem. The crypto community will continue to closely monitor these developments and hope for possible solutions or remedial actions to mitigate the threats to the DeFi space.