Someone Paid 600% Interest on $50M To Borrow CRV, Then Watched It Get Liquidated

Exchange liquidity protocol Curve has launched its first native stablecoin — crvUSD.

The news coincided with a trader borrowing most of the available Curve DAO token (CRV) on Aave, over $50 million worth. The spike in the price of CRV over the past 8 hours put that position very close to — and eventually over — its liquidation point.

The trader is presumed to be Avraham Eisenberg, previously linked to the controversial exploit of Mango Markets on the Solana network, based on Discord discussions related to the trade.

Eisenberg did not immediately return a request to comment via Twitter.

The trader, or trading group, had about $58 million in USDC supporting a $50 million loan of CRV as of 12:20 pm ET on Tuesday.

Trader’s position on Aave’s V3 Ethereum market as of 12:20 pm ET

By 1:10 pm ET, all of that position was liquidated, leaving the Aave protocol with 2.64 million CRV — or about $1.7 million — in bad debt.

It’s not clear what the trade strategy was, but the Aave position was so large it could not be fully liquidated using the available collateral. That’s because the availability of spot CRV was limited enough that the value of CRV jumped to a high of around $0.71 as the position was unwound, data collected by Blockworks shows.

The Curve Finance stablecoin

Michael Egorov, Curve’s founder, previously said the stablecoin will maintain its peg to the US dollar through overcollateralization.

Its latest white paper reveals that the stablecoin’s design will be executed through the Lending-Liquidating Automated Market Maker Algorithm (LLAMMA) which converts between collateral and the stablecoin. So, if the price of a collateral (ETH) dips, the automated market maker will convert deposits to a stablecoin (USD).

LLAMMA will automatically calculate bands to locate where the collateral sits, and if the price of the collateral changes, it will be converted to the stablecoin. 

The crvUSD will maintain its peg to USD through a peg-keeping reserve that is formed by an asymmetric deposit (when the outcome of the deposit has more profit than loss or risk taken to achieve the profit) into a stableswap pool made up of the stabletoken and a redeemable reference coin or an LP token.

The timing of the launch is interesting — it appears to have caused a sharp rise in the price of CRV, putting the collateral for the trader’s loan in danger.

The owner of the wallet borrowing CRV transferred the tokens to OKX, a Seychelles-based cryptocurrency exchange and derivatives exchange, but the subsequent use of those tokens is not known.

Eisenberg’s Twitter account posted that he was “taking the day off to spend time with family” but that appears to have been meant ironically, as his next tweet indicated he was very much monitoring the situation.

Egorov maintains a large position on Aave using CRV as collateral, which some have speculated could have been the target of the trade — if the CRV was sold, creating a short position, which is unknown.

However, it could also be the case that a more complex strategy involved purposefully allowing the CRV loan to be liquidated, which forced Aave liquidators to buy back CRV using the trader’s USDC collateral.

The price of Aave initially dropped as bad debt began to accrue in the protocol, although it recovered fully once liquidation was complete and trades at about $55 as of 1:40 pm ET — flat over 24 hrs, data compiled by Blockworks shows.

Aave’s team expects to easily cover the short fall with its treasury holdings.

This story was updated on Nov. 22, 2022 at 1:00 pm, 1:20 pm, 1:35 pm, 1:45 pm and 1:55 pm ET.

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