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Curve Finance’s Troubles Deepen as Justin Sun Shifts $35M in Tokens to Binance

Last Updated June 18, 2024 11:17 AM
James Morales
Last Updated June 18, 2024 11:17 AM

Key Takeaways

  • Curve DAO (CRV) has struggled to recover after it crashed by 25% last Thursday.
  • Justin Sun’s recent transaction activity suggests he could be preparing to intervene.
  • Since last week’s CRV crash, Sun has transferred $35 million in cryptocurrency to Binance.

Since Curve DAO Token (CRV) dropped by 25% on Thursday, June 13, liquidating 100 million CRV worth of loan collateral put up by founder Michael Egorov, the Curve ecosystem has been struggling to recover.

Last time curve faced such an existential crisis in the wake of last year’s Vyper exploit Tron founder Justin Sun provided an injection of stablecoin liquidity to stabilize the ship. In a sign that he might be preparing to do the same again in the past week, Sun has transferred $35 million in cryptocurrency to Binance.

Justin Sun to Save Curve Again?

According to SpotOnChain, Sun’s largest deposit in recent days was 3.45 million ETHFI worth around $12 million. He has also sent 6.22 million CRV to Binance alongside a basket of 10 other cryptocurrencies.

In the past, Sun has stepped in to buy CRV directly from Egerov, preventing him from being liquidated and helping to calm the volatile market conditions such a prospect created.

CRV Market Remains Bearish

According to blockchain analyst Ember CN , across the various DeFi lending platforms where the asset can be used as collateral, Egerov’s liquidations last totaled around 100 million CRV worth roughly $27 million.

Previously, Egerov came close to liquidating 371 million CRV of loan collateral. And his risky borrowing strategy has become something of a liability.

Before the latest crash, Egerov held $50 million worth of crvUSD loans on Llamalend with an annual interest rate of around 120%. The high interest resulted from there being almost no remaining crvUSD available for borrowing against CRV, with Egorov’s loans accounting for 90% of all borrowed crvUSD on the platform.

With so much risk concentrated with a single counterparty, is there any wonder the price of CRV started to plummet once Egerov’s positions liquidated?

While the cryptocurrency has recovered some of its losses since the initial crash, it has failed to regain $0.35 and is still down more than 18% since this time last week.

Egerov’s Role in 2023 Curve Drama

When Curve Finance was exploited to the tune of $61 million in June 2023, it caused the price of CRV to plummet and sent shockwaves through the wider DeFi ecosystem. 

Considering his loan exposure, Egerov acted quickly  to limit his losses. But the events revealed many systemic risks that inspired platforms like Fraxlend and Abracadabra to implement measures to protect themselves from CRV volatility.

As a result of those measures, the interest Egorov pays on his loans is huge and one gets the feeling that the recent liquidations might be the best way for him to reduce his own exposure to CRV price swings.

Liquidations a Good Thing?

Imagine trying to sell $140 million worth of CRV on the open market. According to Arkham Intelligence, that was the total value of Egerov’s CRV loan collateral before Thursday’s crash, equating to roughly a third of the cryptocurrency’s circulating supply. The effects of such a supply shock could be much worse than a 25% price drop.

 

Sure, he lost a significant chunk of his net worth overnight. But the affected lending platforms held up to the CRV crash and were able to liquidate Egerov’s assets without any of his loans defaulting. 

In the end, losing a quarter of his nominal wealth is preferable to the entire ecosystem on which it is built imploding and arguably the most cost-effective way to offload so much CRV.

Curve Investors the Real Losers

Although Egerov has landed himself $100 million in stablecoins and paid off a string of expensive loans, his actions may have harmed the interests of CRV investors by exacerbating what might otherwise have only been a 10% price drop.

 

In comments shared with CCN, Egerov blamed the initial price drop on the theft of 20 million CRV from UwULend. Because of this exploit, he said that the CRV market acquired around 11 million of bad debt.

“Fortunately, the market is fully isolated from everything else. But depositors in the CRV market could not withdraw their funds,” he observed:

I personally found ways to solve this issue to cover as much as possible of the “bad debt” (I have already repaid all of the “bad debt”. It’s zero now). I am dedicated to ensuring that all users can withdraw their deposits without any hassle. I always think that Curve Finance is my priority, and the most important is our community.

Noting that “the system was tested in unthinkable conditions,” by last week’s events, Egerov said it is important to learn from the incident and apply the lessons to Curve’s lending and borrowing products.

For now, a cash injection from Justin Sun could help clear the bad debt. But this is the second time in a year that Curve has been brought to its knees by a major hack. And there is surely only so many times Sun will be willing to intervene.

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