The founder was finally liquidated and Curve Flywheel went bankrupt?

In the general decline of cryptocurrency, I did not expect that CRV would be the worst.

This morning, Arkham posted that Curve founder Michael Egorov is currently lending $95.7 million in stablecoins (mainly crvUSD) with $140 million CRV as collateral on 5 accounts in 5 protocols. Among them, Michael has 50 million US dollars of crvUSD borrowed on Llamalend, and Egorov’s three accounts have accounted for more than 90% of the crvUSD borrowed on the protocol.

Arkham noted that if the price of CRV drops by about 10%, these positions may start to be liquidated. Subsequently, CRV's decline continued to expand, once falling below $0.26, reaching a record low. CRV lending positions on multiple addresses of Michael also gradually fell below the liquidation threshold.

In the past, Michael would cover his position to save his reception position, but this time, he seemed to have "given up".

According to Ember Monitoring, part of the CRV of Michael Egorov’s main address’s lending position on Inverse has begun to be liquidated. According to Lookonchain monitoring, Michale Egorov currently holds 111.87 million CRV ($33.87 million) in collateral and $20.6 million in debt on 4 platforms.

Liquidation crisis 2 months ago

CRV’s crisis began to emerge as early as 2 months ago. At that time, Michael’s loan position had fallen below the liquidation threshold, but at that time Michael It has not been liquidated, and Michael has not taken any remedial action.

On April 14, as the market fell, the price of CRV was also affected and fell to $0.42. Curve founder Michael Egorov’s lending position entered the red line again. According to Ember Monitoring, Michael mortgaged a total of 371 million CRV on 6 lending platforms through 5 addresses and lent $92.54 million in stablecoins. Of the 12 debts, borrowing a position with silo is the most dangerous.

Starting from November 2022, when the "Big Short on the Chain" ponzishorter tried to short its token CRV, to the end of July 2023, Curve was attacked due to a Vyper compiler failure. , Michael took frequent actions to save his positions, stirring the "soup" of DeFi. People also compared this series of actions to the "DeFi defense war."

The first "defense war" may have been Michael's decoy, which caused the price of CRV to rise instead of falling, making a profit from the "air force battle". The second "defense war" relied on over-the-counter OTC Although its holdings have declined, it has gained a group of very powerful supporters including leading players such as Wu Jihan, Du Jun, and Sun Yuchen, as well as DWF and other institutions. It can be said that CRV's two defensive battles were quite victorious.

At noon on April 14, the CRV price fell to $0.42. According to debank data, among Michael’s 12 positions, the health value of 5 positions has reached 1.12 or even lower. Ember monitored the red line of Michael’s debt position and tweeted to speculate on liquidation. He pointed out that if the price of CRV continued to fall by 10% without replenishment or repayment, liquidation procedures would be initiated.

All debt positions have not been liquidated

However, just as people were thinking about how CRV should respond to the third "DeFi Defense War," something interesting happened.

People noticed that at 4 a.m. that day, the CRV price once fell to $0.3592, which has already fallen below 10% of $0.42. But Michael's debt position was not liquidated as Ember said, and even Michael himself did not seem to have made any remedial measures.

Michael’s debt positions are spread across 6 different lending agreements, among which the most controversial lending agreement is silo.

After the curve attack, most lending protocols tightened their policies as they were unwilling to bear too much risk related to CRV, and more than half of the loans raised by Michael came from silo. In the subsequent process of Michael's repayment of AAVE's debt warehouse, silo provided nearly all the required loans. It can be said that silo has become Michael’s biggest reinforcement in repaying his debts, and has been ridiculed by many community members as Michael’s “personal bank.”

At that time, in Michael’s total debt position, a total of approximately 113 million CRV were deposited in the silo protocol, and a total of stablecoins worth approximately US$27.9 million were lent, accounting for 30% of Michael’s total debt position, but Curve LlamaLend , UwU Lend and FraxLend protocols also provided Michael with most of the loans. Although the proportion is not as high as silo, it is still higher than 15%, of which Curve LlamaLend accounts for 20.7%, UwU Lend accounts for 17.9%, and FraxLend accounts for 17.3%

On the other hand, silo has forked a new protocol, Silo Llama, which is an isolated lending protocol designed specifically for crvUSD. Although this protocol is full of doubts, DeFi should be designed to be independent of user emotions. Compared with borrowing, the lock-in rate of CRV has a greater impact on the selling of CRV. Setting up a separate pool for CRV is one of the working methods of the defi lending vault, and the silo team members also clearly denied the accusation of "creating Silo Llama for one person" .

Putting aside the relationship between silo and curve, the essence of the argument is that silo does not liquidate CRV. Insiders said that since the CRV position on silo uses the Chainlink oracle, the price update will lag behind that of debank, so it is doubtful whether the oracle can track the liquidation price.

According to Chainlink data, the price of CRV recorded at that time all showed that it fell below 0.4 US dollars at 5:30 am on April 14, and was in the range of 0.36 to 0.38 US dollars. Then the author checked the data from dexscreener, coingecko, tradingview, coinmarket and other sources. At that time, CRV fell to around $0.36 at the 30-minute line.

Since the lowest price of crv occurred in the early morning, the author is currently unable to verify whether the health factor returned to zero at that time. But no matter what happened that night between CRV and the various lending agreements, the only thing that is certain is that not just silo, but all of Michael’s debt positions are still there.

In this crisis, some people have focused their attention on silo’s manual liquidation mechanism. Since the liquidation of silos is completely open, the liquidator has the choice of manual or machine. When asked whether choosing manual liquidation will avoid being liquidated by a machine, an insider said that manual liquidation is only a personal liquidation entrance provided by the platform. When faced with a debt to be liquidated, individuals still need to compete with the machine for orders, and often There is no way to overrun the machine.

So, the most critical thing about whether liquidation is triggered or not is whether the collateral price really drops to the liquidation value.

The "Price Game" of the Liquidation Mechanism

According to the silo documentation, the lending protocol has a liquidation application, and the core team uses the liquidation application to monitor risk positions and monitor the liquidation robot (including Silo) liquidate an insolvent position without first liquidating it for any reason.

On April 19, CRV fell again to $0.4. According to the Michael address provided by Ember, the debt position health factors of addresses starting with 0x9, addresses starting with 0x4, and addresses starting with 0x7 in silo were all lower than 0.1 and were in danger. state.

According to the silo finance mortgage factor table, CRV has a loan-to-value ratio (LTV) of 65% and a liquidation threshold (LT) of 85% in the silo agreement. This means that Michael's silo liquidation price is in the $0.41 to $0.44 price range, so the health factor is already theoretically 0.

Calculation formula:

Liquidation price = total borrowing amount/(collateral quantity*LTV*LT)

Health Factor=1-Total borrowings/(Total collateral*LTV)

In this regard, BlockBeats verified with the project team that its price tracking is not simply checking the oracle price feed, but using Weighted average algorithm. This also means that the liquidation price of a certain token will be affected by the price of the lender's remaining lending assets, so the price drop of CRV alone is not enough for the position to enter liquidation. But when asked about liquidity supply, the project team did not respond.

As for Llamalend, the platform where Michael’s largest position is located, its “automatic liquidation” mechanism can prevent soft liquidation. Simply put, the liquidation process is that when the price falls, the collateral is automatically converted into stablecoins, and when the price rises, the collateral tokens are sold back, and only a small amount of crvUSD is repaid to increase the health factor.

In addition, insiders told BlockBeats that in fact, in the case of high market volatility, liquidators need to consider slippage issues, which involves the slippage of both crvUSD and CRV. In the past several large fluctuations in the market, it is normal for the lending agreement machine to be liquidated.

Was "cut" by Michael this time?

The impact of the liquidation of tens of millions of dollars of debt positions on the liquidity of the entire crypto market cannot be underestimated. The crisis in April was still able to escape due to the security mechanism of the lending platform, and this time the CRV fell below 0.26 Dollar, the crisis has finally arrived.

Liquidators profit

Whether the price should be bargain hunting at the new low is also a topic of concern to investors, but at least in CRV, liquidators have begun to make profits.

According to ai_9684xtpa monitoring, the address 0xF07...0f19E is one of the main liquidators of Michael's position. In the past hour, this address liquidated 29.62 million CRV at an average price of $0.2549, spending a total of 7.55 million FRAX. Currently, all of these tokens have been deposited into Binance, with an average recharge price of $0.2792.

As a liquidator, a more economical way may be to open a CRV short order (or borrow the currency to sell) on Binance first and then liquidate it. In this way, the liquidated tokens will only be used for shorting (or repayment), and There is no need to bear the profits and losses caused by currency price fluctuations during the period.

But even if 0xF07...0f19E does not do this, it can still make a profit of US$720,000 by selling it at the average recharge price.

Investors suffer

But on the other side, investors face disaster.

On the one hand, the price drop triggered the liquidation of other lending platforms. Fraxlend’s lenders suffered millions of dollars in liquidation. According to Lookonchain monitoring, 10.58 million CRV (3.3 million U.S. dollars) were liquidated by users on Fraxlend. .

In comparison, Fraxlend’s liquidation mechanism is easier to trigger, and its risk isolation and dynamic interest rate mechanisms do not require any additional measures to allow Michael to actively repay the money himself. In several previous liquidation crises, Michael lent a large amount of assets from Aave and sold coins through OTC to repay Fraxlend's debt.

On the other hand, early CRV investors faced huge losses.

Since the CRV crisis last year, there has been no shortage of comments in the community that "Curve's good cards were beaten to pieces by Michael." The most noteworthy thing about this CRV crisis is the major investors who helped Michael before.

After Curve was stolen at the end of July last year, OGs, institutions and VCs from all parties came to help. Wu Jihan, co-founder of Bitmain and Matrixport, posted on social media: "CRV is one of the most important infrastructures in the upcoming wave of RWA. I have bought at the bottom and this does not constitute financial advice."

Huang Licheng confirmed on social media that he acquired 3.75 million CRV from the founder of Curve through OTC and pledged it to be locked in the Curve protocol. The next day, Justin Sun’s related address also transferred 2 million USDT to the Egorov address and received 5 million CRV.

Subsequently, projects such as Yearn Finance and Stake DAO, as well as DWF and other institutions and VCs, have participated in CRV’s firefighting operations.

Now that CRV has fallen to a record low, Michael himself has not yet made any rescue statement. As the community said about this turmoil, "the one who cut people off was finally cut off by Michael."

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