Curve Founder’s $168 million Stash Faces Stress
[TL; DR]
Egorov’s $168 million worth of Curve Finance crypto was under threat of a liquidation after the recent hack.
A massive liquidation of CRV would have negatively affected the liquidity of several DeFi platforms including Aave.
Security audits of DeFi protocols and robust safety s can help to avoid malicious exploitations.
Introduction
Many decentralized platforms such as exchanges and trading platforms are obvious targets for hackers and scammers. Malicious exploitation of a decentralized platform may send panic among investors and the entire blockchain industry. Also, the exploits may affect other crypto projects as the blockchain connects various protocols.
Today, we discuss the effect of the recent hacking of Curve Finance. We will also explore the dangers that arise when an individual or firm holds a large amount of a crypto asset like CRV.
Read also: Curve Finance crvUSD, expanding its DeFi Stablecoin Platform
Curve Finance Hacking Threatens the Decentralized Finance (DeFi) Sector
The malicious exploitation of Curve Finance, a decentralized exchange, threatened a cross-section of the DeFi sector as it affects its liquidity. On 30 July some attackers exploited Curve Finance through a vulnerability that existed on the Vyper compiler.
Several pools which include PEGD’s pETH/ETH, Metronome’s msETH/ETH and Alchemix’s alETH/ETH were exploited resulting in over $60 million worth of crypto assets being stolen. The hackers’ target was to access Curve Finance DAO token (CRV), several stablecoins and other crypto assets like ETH.
Apart from losing the various cryptocurrencies the Curve Finance eco was heavily affected as the price of its native token (CRV) plummeted by around 20% in the aftermath of the exploit.
It is also important to note that Vyper is a Programming language used for writing smart contracts on the Ethereum blockchain. Some members of the developing team said that the older version of Vyper was vulnerable to exploitation. In this case, the vulnerability called re-entrancy attack allowed the attacker to continuously withdraw crypto assets without the protocol realizing that it had already sent them.
Understanding Curve Finance
Now, to understand the impact of the exploit we need to appreciate Curve Finance’s role in DeFi. Curve Finance, launched in 2020, is a decentralized exchange (DEX) that exists on the Ethereum blockchain. Basically, the platform allows the users to swap different cryptocurrencies without intermediaries.
Individuals and entities can invest in different pools through a process called liquidity provision. Again, it is an important arbitrage tool for traders for assets that decouple in value from one another. In fact, Curve Finance is one of the largest decentralized exchanges with more than $1.6 billion in total value locked (TVL).
Curve Founder’s $168 Million Stash at Risk
Whereas many investors were affected by the hack, Michael Egorov’s (Curve Finance founder) $168 million worth of CRV tokens has been an issue of concern. The CRV price drop that followed the hack threatened liquidity of the Curve Finance crypto. A further decrease in the value of CRV token could lead to liquidation of the token.
The reason is that Agorov had used CRV as a collateral for loans in various lending protocols. In fact, he used $168 million worth of CRV, about 34% of the total supply, to secure several loans.
For instance, Egorov used $63 million worth of CRV as collateral for a loan on Aave. He also used $32 million worth of CRV as collateral to get FRAX stablecoin on Fraxlend, the stablecoin issuer. He also had a loan worth $18 million on Abracadabra. According to DefiLlama, Egorov’s CRV collateral would be liquidated when its value reaches $0.37.
However, after the Curve Finance exploit Egorov took several measures to avert the possible liquidity crunch could the value of CRV drop below $0.37. Egorov shored capital by selling LIDO, the native token for Lido, a liquid staking platform. He also repaid some of his loans to reduce the impact of a possible liquidation.
In addition, Curve Finance offered a 10% bounty for the return of the stolen cryptocurrencies. According to CoinDesk, Curve Finance recovered 75% of the stolen crypto assets after offering the bounty.
Potential Effects of the Liquidation of Egorov’s $168 Million
If the CRV price could drop below $0.37 this could lead to the liquidation of Egorov’s loan collateral of CRV worth $168 million. The effect of such a liquidation would be far reaching as several lending platforms and Curve Finance would face liquidity challenges.
For example, soon after the hack Curve Finance’s total value locked decreased by about 44% while the TVL for the entire DeFi sector fell by over $2 billion. As we note from this development, the liquidation of Egorov’s $168 million worth of the Curve Finance crypto could have a contagion effect on DeFi protocols where CRV is used as a collateral.
The liquidation of CRV would lead to a massive sell off at a very low price which would affect the liquidity of various crypto projects that deal with it. Likewise, a liquidation would likely push its price further down which may create panic among investors. It is worth noting that CRV is paired with various cryptocurrencies in different decentralized finance platforms like Sushi and Uniswap.
Further, this hacking incident has shown that concentrated ownership of a crypto asset in the hands of one or a few individuals or entities may have disastrous consequences. If such individuals use large amounts of a specific token/coin as a collateral or in leveraged trading its liquidation may lead to a sharp drop in its price. This may result in mass sell off and a possible implosion.
Also, when the community of investors realizes that a crypto asset is in the hands of a few individuals or entities that may create a negative sentiment which may adversely impact its value. That is the reason why many retail investors track whale activities to determine the potential price movement of specific cryptocurrencies.
Read also: What is Curve War: Gain Insight Into Curve - The Stablecoin Exchange Leader
Measures to Mitigate Risks Related to Crypto Investments
The crypto industry has also learned valuable lessons from the hacking of Curve Finance and the potential liquidation of Egorov’s $168 million worth of CRV.
First, DeFi firms should take due diligence before offering large loans to individuals and entities. As noted in this case, Egorov amassed a third of the CRV supply to use as a collateral for loans worth millions of dollars, denominated in cryptocurrencies, mostly stablecoins.
The liquidation of cryptocurrencies that are part of the collateral would affect the liquidity and viability of the entire DeFi sector. Therefore, lending protocols should safeguard the value of crypto assets through limiting large positions which may create atic risks.
Crypto projects should create synergies and collaborations to protect investor funds. For instance, the collaborative spirit shown by the white hat hackers and MEV bot operators is important as they helped to recover part of the stolen cryptocurrencies.
Also, the fact that cryptocurrencies worth millions of dollars were stolen as a result of a vulnerability in Vyper programming language indicates a need for strong security audits and implementation of robust security practices and s.
Conclusion
After the hacking of Curve Finance Egorov’s $168 million worth of CRV were under threat from a possible massive liquidation. The reason for this is that Egorov used the tokens as collateral for various crypto loans. A large liquidation would have also affected the liquidity of various DeFi platforms that have CRV as part of their portfolios.
FAQs About Curve Finance
What is Curve Finance?
Curve Finance is a decentralized exchange where people can swap cryptocurrencies. Anyone can deposit his/her crypto assets in different pools that exist on the platform.
Is Curve Finance safe?
Curve Finance is safe since it has not experienced many malicious exploits over the years. However, like any other decentralized malicious actors may compromise it at any time depending on its current security practices.
Why buy CRV?
CRV is a governance token of Curve Finance, one of the leading decentralized exchanges. Since there is a high demand for the Curve Finance services CRV is likely to maintain a stable value over time. Likewise, the platform has a very valuable technology and many traders use it. Read also how to buy Curve DAO
Is CRV good investment?
CRV is a good investment since it supports a decentralized exchange whose products and services are in high demand. Many crypto investors swap thousands of cryptocurrencies on Curve Finance.
