Curve Finance Faces Potential Systemic Risk in Upcoming February Stress Test, Warns Crypto Analyst
Summary:
The Curve Finance protocol, a decentralized finance system, is still facing a potential systemic risk and will undergo another stress test in February, warns crypto analyst DeFi Made Here. The event could be triggered by a large amount of CRV tokens going on sale, echoing a scenario from August when the CRV token price threatened to collapse. Founder of Curve Finance Michael Egorov, who had previously owed $100 million to various DeFi protocols, managed to stabilise the company through an over-the-counter sale of CRV tokens. However, this 'stress test' will determine if Curve can withstand potential liquidity withdrawal and subsequent price plummet following the sale of the CRV tokens when they become tradeable in February.
The ongoing threat to the stability of Curve Finance, a crypto protocol, is yet to be fully mitigated, and is expected to endure a final "stress test" in February, announced a crypto investment analyst under the alias DeFi Made Here on January 8th. He detailed that a high volume of Curve's tokens (CRV) will soon be available for trading, and the sale of these tokens might trigger an event parallel to the one that occurred in the previous August. CRV's price nearly plummeted during that period, however, he stressed that this outcome is merely a possibility.
DeFi Made Here, an analyst in Alphabeth Capital, a crypto investment fund, and consultant to Web3 development firm Good Entry Labs, reiterated in his report the persistent risk to the infrastructure of the Curve protocol. The precarious ownership of the Curve system and the mounting pressure on Mich's debt repayment, that increases by $1.7M every month, are highlighted as concerns.
Michael Egorov, founder of Curve Finance, bore a debt of $100 million to several decentralized finance protocols as of August 1 according to Delphi Digital, a crypto market research company. This owed amount was guaranteed by CRV tokens, and was viewed by skeptics as a gamble both to the Curve protocol and the entire DeFi protocol. Despite this, Egorov repaid some of his obligations after a $62 million exploitation of Curve in August, which gave the impression that the protocol survived the predicament.
The report disclosed that this apparent stability might be obscuring an inherent defect in the Curve protocol. Egorov was on the brink of liquidation in August, but recognized that he wasn't able to maintain his claim to repay the debts when needed. In response to this threat, he opted to auction some of his CRV tokens to investors via an over-the-counter sale and use the earnings to settle his debts.
Egorov insisted on an agreement with parties that purchased the tokens to abstain from selling them prior to February 2024, to prevent the flooding of coins in the market. Among the counter-parties who engaged in the transactions were market makers Wintermute and DW Labs, Justin Sun of Tron network, Web3 developer known as "Machi Big Brother", and other cryptocurrency investors.
The ability of Egorov to secure the funds to repay his loans rejuvenated the conference in the Curve. However, DeFi Made Here proposed that Egorov procured new loans amounting to $75 million, with the introduction of the Silo Llama protocol in October. This protocol utilizes Curve's stablecoin, crvUSD, as collateral. A significant portion of these loans is credited to "0xSifu", also known as Michael Patryn, a DeFi developer. The analysis suggests that Patryn, who is also hedging against CRV, could start "withdrawing liquidity from the pool and selling more CRV" when over-the-counter tokens are tradeable in February. This could potentially ignite a crisis for the Curve protocol once again, arousing fears of Egorov's loan liquidation and ripple effects throughout the Curve ecosystem.
According to DeFi Made Here, Patryn could be a "good actor" and could pay off his CRV debt and keep supplying liquidity for Egorov, and buyers of over-the-counter may not replicate this. The analyst predicts this to be a hopeful scenario and trusts that Curve and CRV design's impending events will remain unscathed and that design limitations will facilitate the ecosystem to withstand the pressure. Currently, with over $1.6 billion worth of encrypted assets deposited in its contracts, Curve ranks as the seventeenth-largest DeFi protocol as per DeFiLlama, a blockchain analysis platform.
Published At
1/9/2024 12:01:28 AM
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