Curve Founder’s $168M Stash Is Under Stress, Creating a Risk for DeFi as a Whole

Chaos at Curve Finance has put a $168 million lending position held by founder Michael Egorov at greater risk of liquidation, an event that – if it happens – could have giant implications across decentralized finance (DeFi).

Egorov has $168 million of CRV, Curve’s native token, securing loans from multiple DeFi protocols, data on blockchain analytics site DeBank shows. That equals almost 34% of the token’s total market capitalization.

Read more: Crisis at DeFi Giant Curve Eases After Justin Sun and Others Step In With Help

Following an exploit over the weekend at Curve, CRV’s price has sunk more than 20%, putting Egorov closer to levels where he’d get liquidated.

A forced liquidation would be another serious blow to Curve, a key piece of infrastructure in the DeFi economy, after the protocol suffered the major exploit that siphoned some $70 million of assets away from users. The total value of assets locked on Curve dropped to $2.1 billion from $3.7 billion as many investors withdrew funds as a precaution.

Given the interconnected nature of DeFi, if Egorov's position is liquidated that could put pressure on other decentralized lending protocols as well as CRV's price. CRV itself could be described as a systemically important asset that is used as a trading pair and ballast in trading pools across DeFi, including on popular platforms like Sushi and Uniswap. It is a popular form of collateral on loan-making platform Aave.

Egorov locked up some $168 million in CRV tokens on Aave to take out a $63 million loan in Tether’s USDT stablecoin. According to DefiLlama, the level Egorov’s CRV collateral gets liquidated is 37 cents; CRV currently trades for around 55 cents.

Egorov also borrowed $17 million of the FRAX stablecoin using $32 million of CRV as collateral on stablecoin issuer Fraxlend. In the past few hours, Egorov has made several transactions to repay some of the capital he borrowed on Fraxlend, per DeBank. He also has a $18 million loan on decentralized platform Abracadabra.

Egorov has been shoring up capital this afternoon by selling LDO – the governance token for liquid staking leader Lido – for Circle’s USDC stablecoin in several batches between $10,000 and $50,000, according to Etherscan.

Whether or not Egorov’s CRV borrow position is liquidated, the situation has already raised questions in crypto investing circles around how a single person was able to lend so much of a “blue chip” crypto token’s supply.

Read more: Curve Finance CEO Egorov Sued by 3 DeFi-Focused Venture Capital Firms

It’s also raised questions for decentralized lending protocols like Aave, and whether they should implement safeguards to limit large positions like Egorov’s that have the potential to introduce systemic risk.

According to data from Coinglass, CRV has had $3.03 million in total liquidations in the past 24 hours, trailing behind BTC and ETH.

CRV was launched without a premine (aka tokens set aside for founders and employees) and initially set to be distributed primarily to liquidity providers on the platform.

Egorov was widely criticized in 2020 after taking control of more than two-thirds of a separate Curve voting token called veCRV, used to vote on and submit proposals on CurveDAO. He later apologized for the move, explaining that it was an "overreaction" towards what looked like a takeover attempt from rival platform Yearn.Finance.

Gauntlet, a risk management firm that caught sight of Egorov's massive CRV loans on Aave as early as January, recommended at the time to freeze the CRV market on Aave V2 to mitigate the chances of a meltdown happening like it did on Monday. There are indications that Egorov actively managed his sizable position in the past, including at times paying down portions of the debt.

UPDATE (Aug. 1, 2023, 01:49 UTC): Adds context throughout.