Curve Finance's Soft Liquidation Holds Firm Despite CRV Price Plunge and Hacking Attempt
Summary:
Despite a hacking attempt and the price of its native token CRV falling over 28%, Curve Finance's soft liquidation mechanism passed a real-world test. This mechanism, part of Curve Finance's Lending-Liquidating Automate Market Maker Algorithm (LLAMMA), ensures liquidations occur without resulting in unrecoverable debts. However, Michael Egorov, the founder of Curve Finance, faced substantial liquidation pressures amid the chaos. Despite these challenges, the system functioned as per expectation.
In a recent hacking attempt, Curve Finance's minimally invasive liquidation method underwent a real-world scenario, yet amidst the turbulent events, the proprietary token CRV's price plummeted by more than 28%. Although the CRV value experienced a dramatic drop, the liquidation procedure of Curve Finance functioned as per anticipation.
On-chip data reveals that Michael Egorov, the founder of Curve Finance, encountered massive liquidation challenges on June 13 due to the decrease in CRV token price. Egorov's transaction logs reveal his struggle to maintain his debt standings, conducting numerous liquidations in a short time span. He also executed repayments and withdrawals with decentralized finance (DeFi) platforms like Inverse Finance and Curve.fi.
Curve Finance's Lending-Liquidating Automate Market Maker Algorithm (LLAMMA) is equipped with a delicate liquidation system. This system guarantees that liquidations happen without accruing "bad debts", debts that cannot be successfully repaid or profitably liquidated. LLAMMA's official guidelines state that when a new loan is sanctioned, the collateral is segmented into specific bands across the automated market maker (AMM).
LLUAMMA's guidelines further go to explain, "Unlike conventional liquidation, which has a single liquidation price, LLAMMA has a variety of liquidation ranges (denoted by the bands) and continuously liquidates the collateral as per requirement." However, it is also noted that positions "experiencing soft-liquidation/de-liquidation undergo losses due to the buying and selling of collateral."
Nevertheless, the safety measures functioned as predicted, the market response to the event was abrupt, causing a drop in CRV price of over 28% in the past 24 hours. This development comes on the heels of Cointelegraph's prior report on the inherent "systemic risks" of Curve Finance, focusing particularly on Egorov's debt commitments.
Published At
6/13/2024 11:04:46 AM
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