Aug 3, 2023

Kaiko research analyst Riyad Carey discusses his crypto markets analysis as Curve Finance's native token CRV has fallen nearly 20% in the past week after the protocol fell victim to an exploit over the weekend.

Video transcript

Curve's native token. CRV has fallen roughly 20% in the past week. And Cio is out with some new research, say, since the exploit that puts more than $100 million worth of crypto at risk, not the research, but that's how much is at risk joining us. Now to discuss the latest with the curve exploit is KO research analyst, Riad Cary. Welcome. R. Hi. Thanks for having me. Glad to have you on. So let's start with Cr V's price, uh unpack it for us here. I mean, we, we saw this uh downturn of course. Uh and, and we actually saw a couple of interesting things uh yesterday. Uh There was a little bit of a self off. There's some discussion that the founder of Curve might be doing some OTC uh trades uh which aren't necessarily seen on exchanges but can be found on the Blockchain. So can you talk a little bit about all that? Yeah. So the founder and CEO of Curve had deposited about like a, a few 100 million worth of curve tokens on a variety of D I lending and borrowing platforms uh sort of using these tokens as collateral, he had borrowed about $100 million worth of staple coins. Um So when curve was hacked, there was, uh, a lot of concern basically that this position would get liquidated, which would have of huge ripple effects that we can get into a little bit later. Um, that has not played out yet. We did see that. Um, because the curve, uh, e curve pool was hacked, you can see on the chart there that the price of curve briefly drops like below 10 cents. Uh that was just on curve. Um And then on UNIS it also drops as well um compared to sun size exchanges where, as you said, it drops about 25%. What, what was interesting too on, on that whole aspect was that um chain link came to the rescuer, actually, centralized exchanges came to the rescue as, as we've discussed, I think here, uh because the oracles were uh you know, put in place and, and it's something that, that uh Binance the C uh was touting that hey, you know, what uh centralized exchanges saved DFI. Um What does that have to do ultimately with, uh you know, between that and also just some of the actions that uh er did, uh you know, when it comes to liquidity uh with, with CRV, you know, ultimately I are things kind of stable now now that we know that hey, you know, the oracles that uh you know, put in place were kind of safeguards and everything is ok again, or don't hold your breath. It's, it's hard to say because, uh, some of these positions now have, um, some of these loans now have really high interest rates, um, especially the FX, uh, position Africa and Africa. Yeah. And now they're all sort of, you know, kind of jockeying to get their loan repaid first. The different D five protocols are, um, so that's sort of an interesting wrinkle. I mean, he has a lot of curve tokens. So it's basically how much money can he get for those curve tokens. I think that's why we've seen a lot of these OTC transactions. Um curve has the by far the highest uh average trade count, average trade size um of any exchange, centralized or decentralized. I mean, in the last bull market, the average trade was about $100,000 for periods of time. So they have these sort of close relationships with whales, with D five protocols. I think they have a lot of respect amongst that sort of Ethereum crowd. Um So they've been able, he's been able to, you know, sell these tokens over the counter to uh defied treasuries. Um A couple of V CS, uh just some Ethereum Whales, things like that. Um And actually, as the last chart, you showed those sort of an interesting um phenomenon where normally after an exploit, we see liquidity drop, especially on the bid side Um Here we saw basically the opposite. Um after the exploit, there were, yeah, there was a huge surge in bids about a million dollars worth of bids added um on Binance alone. Um And because we're so concentrated on one exchange, it does sort of give the appearance of, you know, not necessarily a market maker but somebody else that's saying, ok, look, I'm, I'm willing to buy curve at this price and I'm willing to sort of support its price here. Actually, there was also a big surge on, on the largest exchange in Korea. I was wondering if you were following that. Oh, I, I heard rumors that that was market making as well, but I, I don't know if you have any thoughts on what happened there. Yeah, I think there was a bit of a surge on other exchanges, but we definitely saw the most pronounced one on Binance. Um And I guess the issue with centralized exchanges is you, you don't know who it is. Um So we could speculate that it's market makers. I think anecdotally we've seen in the past, that sort of market makers will step to the side after an exploit as sort of information is still coming out and it's not totally clear what the fallout will be. Um So it's, it is pretty unusual but, but do we think that this was uh one of these situations where it was too big to fail and they had to jump in and everyone had to save each other if they want to save the industry. I, I think there's some element of that with the OTC transactions. Um where essentially it was like, you know, these are Ethereum Whales who have probably used curve a lot in the past, they probably earn uh own the curve token already. And there's, you know, want to support the protocol, see an opportunity to get in, you know, they were buying it for 40 cents when the price is a bit high. I was just gonna ask that, like, was it just people seeing a buying opportunity? Right. I mean, every, every crisis has opportunity, I suppose. Yeah, for sure. I mean, but I guess, you know, the thing is if, if they were to move those tokens like a centralized exchange, people would assume that they were selling them. So they're, it's just very highly scrutinized now. Uh Just because so much of this has played out on chain. So just one more thing, you had a, you had a chart there of a and uh versus crv. So what, what's going on there? Yeah. Well, because, uh you know, these loans are so massive um, on a variety of protocols. Uh Ave is by far the biggest loan I think when I wrote about this last month, uh he had borrowed about 60 million US DT. Um And I think it's reasonable to speculate that if this position were to get liquidated. Um There is nowhere near enough curve liquidity to liquidate it efficiently. Essentially a would be saddled with a significant amount of bad debt. And in those situations, Ave has this thing called the safety module where they auction off or they sell the Ave token to cover any shortfall, which obviously, uh, we would put a lot of pressure on Ave's price. I personally don't think it's the greatest mechanism. Um, but I think that's sort of like the second order effect of this exploit. Sorry. Could you just say why you don't think it's the greatest mechanism? Yeah, I mean, it's, it's sort of protecting the protocol with its own token. Um You know, if it were to get saddled with bad debt, presumably people would be selling the Ave token already, then it has to pass through governance, um, to then use the safety module. So there's a whole lot of time to front run a huge amount of selling. Uh, you know, that to me that just doesn't seem that efficient. All right. Thank you. Thank you, Richard. That was co research analyst, Riad Carri. Thanks very much for joining us. Thanks for having me.

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