Sorting out the Curve founder's liquidation event: Why was he indifferent to the third round of DeFi defense?

Author: Chain Tea House

Curve Finance is a DeFi platform focused on stablecoin exchange, whose founder Michael Egorov has long used the governance token CRV of the platform as collateral, borrowing a large amount of stablecoins from multiple DeFi platforms. However, the drastic fluctuation in the price of the CRV token has put Egorov’s borrowing position at risk of liquidation.

On the evening of June 13, Arkham stated that Michael Egorov, the founder of CRV, had a lending position worth nearly 9 figures (141 million US dollars CRV), which has been fully liquidated, and a total of over 1 million US dollars bad debt has been generated on Llamalend, Curve’s lending platform.

Specifically, Egorov used a large amount of CRV tokens (approximately $141 million) as collateral to borrow stablecoins from multiple DeFi platforms, mainly crvUSD. Egorov conducted lending operations on multiple platforms such as LlamaLend, Inverse, Uwu Lend, and Fraxlend, with annual interest rates as high as 120%.

Since the storm broke out, the price of CRV has plummeted by nearly 25% in a short period of time, falling from $0.35 to $0.21, triggering the liquidation mechanism of multiple platforms.

This is not the first time Michael Egorov has been liquidated. In November 2022, there were many shorts trying to short CRV, which was called the first DeFi defense battle. To counter this shorting behavior, Michael Egorov, the founder of Curve, implemented some short-squeeze strategies in an attempt to stabilize the CRV price. Through these strategies, the CRV price not only did not drop but also rebounded. Egorov achieved a partial victory in the battle against the shorts.

The second time was in August last year, when Michael Egorov collectively collateralized 292 million CRV tokens on lending platforms such as Aave, FRAXlend, Abracadabr, Inverse, with a value of 181 million US dollars, and borrowed 110 million US dollars. The comprehensive liquidation price is around 0.4 US dollars.

In last year’s liquidation, Michael Egorov actively replenished the position to avoid liquidation caused by the fall in CRV price, and sold 159.4 million CRVs to 33 investors or institutions over-the-counter (OTC) in exchange for 63.76 million stablecoins to repay the loan, saving his own position.

In addition, during the second round of DeFi defense, Egorov also received support from many well-known investors and institutions, including Wu Jihan, Du Jun, Sun Yuchen, etc. They purchased a large amount of CRV through OTC transactions to help stabilize the market.

However, in response to this year’s clearing storm, although Curve founder Michael Egorov posted on social media that the Curve team and I have been working hard to resolve the clearing risk issue, as the public knows, all of his loan positions have been cleared.

In this dilemma, in the third round of DeFi defense, Michael Egorov remained indifferent, basically not replenishing margin, not saving.

Why can Michael Egorov be so calm? Because he himself is “benefiting” from it.

Commenting on the CRV Position liquidation, Ethereum core developer eric.eth said that the Curve founder did not suffer a “loss” as a result of CRV’s liquidation, and that he received $100 million in proceeds from $140 million worth of CRV Position.

The yield principle of Michael Egorov is similar to traditional stock borrowing operations, borrowing a large amount of loans on multiple DeFi platforms by using Curve DAO token (CRV) as collateral, except that here, the collateral is crypto assets instead of stocks.

Traditional stock borrowing usually refers to individuals or institutions pledging their held stocks to financial institutions to obtain loans. This operation can help holders obtain liquidity funds without selling their stocks, while continuing to enjoy the potential appreciation of the stocks.

Although Egorov did not directly sell his CRV tokens, by using them as collateral for a loan, he effectively converted a portion of the token’s value into usable liquidity. This operation can be seen as a variant of equity cash-out, because he obtained cash flow by pledging tokens instead of selling them directly.

Of course, after observing Michael Egorov’s calmness in the past few days, it is basically certain that he has given up on Curve and wants to make a final profit before letting go. Compared to being forced to sell at a discount through acquisition, pledging CRV is indeed more profitable for him personally.

On the other hand, investors are facing disaster.

The price drop triggered the liquidation of other lending platforms, and Fraxlend’s lenders suffered millions of dollars in liquidation. According to Lookonchain monitoring, users were liquidated for 10.58 million CRV (3.3 million USD) on Fraxlend.

Early CRV investors and other investors within its ecosystem are also facing significant losses. According to DeFiLlama data, as of June 18th, Curve’s TVL has dropped to $1.9 billion, compared to its peak of $23 billion in 2022. TVL has shrunk to less than one-tenth of its original value, and its ranking in the DeFi market has also dropped to outside the top 15.

Of course, in the face of this liquidation turmoil, there are also people who support and profit from it. For example, Christian, a NFT whale and co-founder of the encryption fund NDV, stated that he obtained 30 million CRV from Michael Egorov to support the future of Curve and DeFi. It is reported that Christian’s off-exchange purchase of CRV is about 6 million US dollars, that is, the price of each CRV token is 0.2 US dollars. Based on today’s price of 0.28 US dollars, the book profit is about 40%.

Regardless of the future direction of this matter, from the current attitude of the founder Michael Egorov, Curve has no way out. This DeFi leading product, which once competed with Uniswap, has been disrupted by its founder, which is lamentable. Of course, from these few DeFi defense battles, it can be seen that there are also many shortcomings in the development of the DeFi track, and it is hoped that project parties will take them as a lesson.