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.

Related: Ethical hacker retrieves $5.4M for Curve Finance amid exploit

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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