Andrew Thurman

After a week that saw the price of Curve’s CRV token fall 20%, a series of over-the-counter deals originally made to bail out Curve founder Michael Egorov’s lending positions now face scrutiny. 



On July 31, <a href="https://blockworks.co/news/curve-suffers-exploit">Curve suffered a $70 million exploit</a> that sent the price of CRV tumbling from $0.73 to as low as $0.50.



While the majority of the funds were later <a href="https://blockworks.co/news/post-curve-defi-health">recovered or seized by whitehat hackers</a>, one pool in particular —&nbsp;CRV/ETH — remained drained. This pool was an important source of on-chain liquidity for <a href="https://blockworks.co/price/crv">CRV</a>, and without it, lending markets that might need to liquidate CRV collateral on delinquent positions ran the risk of incurring bad debt.&nbsp;



This was not a theoretical risk. At the time of the attack, Egorov held upwards of $110 million in <a href="https://blockworks.co/tag/stablecoins">stablecoin</a> loans from various lending platforms, largely using CRV collateral. As the price fell, many of those positions appeared to be at risk of liquidation.&nbsp;



To save his loans — and potentially prevent cascading liquidations across the DeFi space — Egorov entered into a series of over-the-counter (OTC) deals with over a dozen counterparties, selling large tranches of CRV for stablecoins to pay down his debts. 



Read more: <a href="https://blockworks.co/news/curve-egorov-exit-defi-positions">Curve’s Egorov turns to notable counterparties to bail out his DeFi positions</a>



While the terms of the deal were not formally disclosed, multiple individuals who claimed to have been approached wrote publicly that the tokens were sold for $0.40 per CRV (well below market rate at the time) with a six-month lockup. However, the lockups did not appear to be enforced legally or via smart contract.&nbsp;



In a statement to Blockworks, <a href="https://blockworks.co/tag/michael-egorov">Egorov</a> confirmed that there are no negative effects for buyers who break the handshake agreement, but that he “thinks they would” keep their word regarding the six-month lockups. 



Observers have already noted that some of the parties have transferred their tokens to centralized exchanges — often a sign that they intend to sell.&nbsp;



Andrei Grachev, head of DFW Labs, one of the entities that has transferred their OTC’d tokens to an exchange, denied these accusations on Twitter, claiming that the move was for “trading needs” and not to sell.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Sent 2m <a href="https://twitter.com/search?q=%24CRV&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$CRV</a> on Binance, and, will probably send more. Not for liquidation purposes (it would be dumb to sell it now), but for trading needs. When we’ve done our plan, we will withdraw <a href="https://twitter.com/search?q=%24CRV&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$CRV</a> back to onchain Cheers and enjoy rollercoaster 🎢 <a href="https://t.co/Kdds4DQrP6">pic.twitter.com/Kdds4DQrP6</a>&mdash; Andrei Grachev (@ag_dwf) <a href="https://twitter.com/ag_dwf/status/1693933946910732535?ref_src=twsrc%5Etfw">August 22, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



As Egorov pointed out to Blockworks, other users have indirectly committed to the six-month lockup by vote-escrowing their CRV. Locking tokens in the vote escrow contracts issues veCRV, which allows users to dictate the flow of further CRV rewards to specific liquidity pools.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">0xf51, the largest <a href="https://twitter.com/search?q=%24CRV&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$CRV</a> OTC buyer, has just locked 15,000,000 CRV until February 1st. Is this the largest <a href="https://twitter.com/CurveFinance?ref_src=twsrc%5Etfw">@CurveFinance</a> lock ever? <a href="https://t.co/YkLQ8fVTJd">pic.twitter.com/YkLQ8fVTJd</a>&mdash; Chago0x (@chago0x) <a href="https://twitter.com/chago0x/status/1691369383820488704?ref_src=twsrc%5Etfw">August 15, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Despite the price dip, Egorov’s current positions look <a href="https://debank.com/profile/0x7a16ff8270133f063aab6c9977183d9e72835428">healthy</a>. On Aave, he has a $14.8 million loan secured by $55.8 million in CRV collateral, and across a number of protocols an additional $27 million in debt secured by $68 million in collateral.&nbsp;



CRV is currently trading around $0.45, down 6% on the day.



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CRV down 20% on the week as traders scrutinize OTC deals

Katherine Ross

Binance Labs announced that it will invest $5 million in Curve’s DAO token CRV. Curve will also explore deployment to BNB chain as part of the announcement.&nbsp;



Binance Labs is the venture capital arm of <a href="https://blockworks.co/tag/binance">Binance</a>.&nbsp;



“Curve is the largest stableswap, and as a key protocol in DeFi it has contributed to the steady growth of the space in 2023. Given the recent events that have impacted the protocol, Binance Labs has offered our full support to Curve through our investment and strategic collaboration,” Yi He, head of Binance Labs, said in a statement.



No timeline was given on a possible deployment to BNB chain, however.&nbsp;



Curve founder Michael Egorov <a href="https://www.binance.com/en/blog/ecosystem/binance-labs-invests-$5m-in-curve-dao-token-crv-and-supports-curve-deployment-to-bnb-chain-4372009526169554266">said</a>, “BNB Chain has earned a significant presence in DeFi, and is well positioned to deploy Curve&#8217;s current and future products on its chain.”



Curve suffered a hack of over $70 million at the end of July, with multiple attacks draining various pools including Pendle’s pETH-ETH, Alchemix’s alETH-ETH, and CRV/ETH. A software exploit was at fault for the exploit.



On Aug. 1, Egorov turned to <a href="https://blockworks.co/news/justin-sun-summoned-sec-lawsuit">Tron founder Justin Sun</a> and <a href="https://blockworks.co/news/zachxbt-legal-defense">tech entrepreneur Jeffrey Huang</a> for liquidity, making a <a href="https://blockworks.co/news/curve-egorov-exit-defi-positions">series of over-the-counter</a> (OTC) transactions.&nbsp;



Binance Labs did not immediately return a request for comment asking to clarify if this deal was part of the recent OTC transactions made by Egorov.



Read more: <a href="https://blockworks.co/news/post-curve-defi-health">As Curve’s crisis fades into the rearview, what’s next for DeFi?</a>



Following the attack, Curve Finance offered a hefty bounty — worth roughly $1.85 million — to identify who exploited the protocol.&nbsp;



“If the exploiter chooses to return the funds in full, we will not pursue this further,” the team behind the DeFi protocol said on Aug. 6.



Since then, Curve was able to recoup a large portion of the funds through white hat hackers, according to PeckShield.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><a href="https://twitter.com/hashtag/PeckShieldAlert?src=hash&amp;ref_src=twsrc%5Etfw">#PeckShieldAlert</a> A total of ~$73.5M worth of cryptos on <a href="https://twitter.com/hashtag/Ethereum?src=hash&amp;ref_src=twsrc%5Etfw">#Ethereum</a> were stolen in the <a href="https://twitter.com/hashtag/Curve?src=hash&amp;ref_src=twsrc%5Etfw">#Curve</a> Reentrancy exploit. So far, ~73% of them (~$52.3M) have been returned. The remaining ~$19.7M worth of cryptos on <a href="https://twitter.com/hashtag/Ethereum?src=hash&amp;ref_src=twsrc%5Etfw">#Ethereum</a> have not yet been returned by the 1st Curve CRV-ETH exploiter… <a href="https://t.co/hU4v1UATeh">pic.twitter.com/hU4v1UATeh</a>&mdash; PeckShieldAlert (@PeckShieldAlert) <a href="https://twitter.com/PeckShieldAlert/status/1688404426825117697?ref_src=twsrc%5Etfw">August 7, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



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Binance

Binance Labs to make $5M investment in CRV following July hack

Over $70 million in various digital assets have been hacked in a series of attacks on the Curve Finance decentralized exchange on Sunday.&nbsp;



The attacks began at roughly 9:30 am ET, beginning with an exploit of JPEG’d’s pETH-ETH liquidity pool for over $11 million, although that may have been <a href="https://twitter.com/DecurityHQ/status/1685646377198505985">frontrun</a> by an <a href="https://twitter.com/DecurityHQ/status/1685646377198505985" target="_blank" rel="noreferrer noopener">MEV searcher</a>. 



Four other attacks — potentially all launched by different <a href="https://app.cielo.finance/feed/preview/3971-Vyper-Reentrancy-Hackers?minUSD=1000">actors</a> — also drained Alchemix’s alETH-ETH pool, the CRV/ETH pool twice, Pendle’s pETH-ETH pool, and Metronome’s msETH-ETH pool, for a total of over $70 million, per security expert <a href="https://twitter.com/tayvano_/status/1685789453556846592/photo/1" target="_blank" rel="noreferrer noopener">analysis</a>. Some of the hacks were reportedly executed by whitehat hackers, meaning that the total amount lost could be closer to $50 million. 



In a statement on the Curve Discord, team representative “mimaklas” wrote at roughly 4:30 pm ET that &#8220;all affected pools have been drained or white hacked. All remaining pools are safe and unaffected by the bug.&#8221; A Curve representative declined to comment.&nbsp;



Despite these public statements, the attacks may still be ongoing. Two hours after mimaklas’ message, another exploit of the CRV-ETH pool drained an <a href="https://etherscan.io/tx/0xcd99fadd7e28a42a063e07d9d86f67c88e10a7afe5921bd28cd1124924ae2052" target="_blank" rel="noreferrer noopener">additional</a> $5.2 million. 



With $3 billion in liquidity, Curve is comfortably the second-largest and most structurally significant DEX in DeFi, and carries particular importance for stablecoin swap markets — which were not impacted. Curve’s <a href="https://blockworks.co/price/crv" target="_blank" rel="noreferrer noopener">CRV</a> governance and rewards token is down 13.4% to $0.64 after falling as low as $0.58 earlier in the day.  



<h2 class="wp-block-heading">0-day bug</h2>



According to Dr. Laurence Day, the founder of Wildcat Finance and a frequent presenter on smart contract exploits, the thefts were enabled by a zero-day vulnerability in particular versions of the compiler for Vyper, the programming language Curve used for multiple contracts.&nbsp;



The vulnerability is rooted in an assumption regarding “reentrancy” preventions that failed to work as intended. Reentrancy attacks are <a href="https://blockworks.co/news/the-nine-largest-crypto-hacks-in-2022">a common exploit vector</a>.



In the hours since the vulnerability came to light, there has been some amount of finger-pointing between development teams. In a since-deleted tweet, the official Curve Twitter account seemed to blame JPEG’d developers for the exploit. JPEG’d’s team in turn <a href="https://twitter.com/JPEGd_69/status/1685700962621464576" target="_blank" rel="noreferrer noopener">defended</a> themselves.



Curve is also an important <a href="https://gov.curve.fi/t/proposal-to-fund-vyper-development-via-a-new-fundraising-gauge/2726" target="_blank" rel="noreferrer noopener">supporter</a> of the Vyper team, having funded its ongoing development in the past, and Curve team members are actively involved in the maintenance of the Vyper codebase. 



Day cautioned against blaming any one team for the exploit.&nbsp;



“Compilers come pre-packed with a whole host of behavioural assumptions that the vast majority of us simply take for granted because we assume that people smarter than us have done the leg-work closer to assembly,” he wrote. “It&#8217;s very easy to point fingers and call out failures to verify these things.”



<h2 class="wp-block-heading">Alchemix halts contracts</h2>



Among the hardest-hit protocols in the attack, Alchemix has paused a number of contracts to prevent the exploiter from swapping alETH for native ETH, including a bridge to Optimism where the AMM Velodrome has $4.4 million in liquidity in an alETH pool, and the “transmuter” contract, which exchanges alETH for ETH 1-to-1.



Alchemix is designed to give users an advance on their future yield, and uses a synthetic ether derivative, alETH, backed by ether in the process.&nbsp;



Nonetheless, in a <a href="https://twitter.com/AlchemixFi/status/1685737642565173248" target="_blank" rel="noreferrer noopener">tweet</a> the Alchemix development team reports that an exploiter managed to take 5,000 ETH from the alETH-ETH pool, possibly leaving the alETH asset partially unbacked. The extent of the damage is unclear; two attacks on the alETH drained over $30 million, but one may have been a whitehat operation. 



Additionally, one <a href="https://debank.com/profile/0xb8b92767f681979fc1c1af75014adb51e4e4958b" target="_blank" rel="noreferrer noopener">user</a> who appears to be unassociated with the initial exploits took advantage of the exploit to swap 5 ETH for 1200 alETH, which they subsequently transferred to a secondary address prior to <a href="https://debank.com/profile/0x60ee0c8bb493b79286a54997322904f74fba3736/history" target="_blank" rel="noreferrer noopener">selling</a>.



alETH is currently trading for $1,476 relative to native ETH at $1,887, meaning the market is assuming a 22% lack of backing. alETH has $68 million in total market capitalization per Coingecko, with $38 million on Ethereum mainnet alone.



Alchemix’s governance token <a href="https://blockworks.co/price/alcx" target="_blank" rel="noreferrer noopener">ALCX</a> fell about 7% after the exploit.



<h2 class="wp-block-heading">Possible contagion</h2>



Aside from the economic damage from the attacks themselves — the pools that were exploited were significantly larger in dollar terms at the time of attack than what the exploiters actually managed to swipe — many observers are worrying over the potential ripple effects.&nbsp;



Of particular interest is Curve Finance founder Michael Egorov’s $60 million Aave V2 loan. The loan is backed primarily with CRV tokens far in excess of what the protocol could easily liquidate, which <a href="https://blockworks.co/news/aave-curve-bad-debt">could potentially result in bad debt</a>.&nbsp;



The size of Egorov’s position is such that it has perhaps <a href="https://blockworks.co/news/curve-stablecoin-crv-loan">previously been the target of attack</a>.&nbsp;



After Egorov’s account added collateral to the protocol and paid down nearly $4 million in debt, the position is currently stable.&nbsp;



<h2 class="wp-block-heading">Potential recovery</h2>



A portion of the hacked funds not seized by whitehats have also already proved to be recoverable.&nbsp;



Three of the five exploits were frontrun by MEV searchers, including the <a href="https://etherscan.io/tx/0xa84aa065ce61dbb1eb50ab6ae67fc31a9da50dd2c74eefd561661bfce2f1620c" target="_blank" rel="noreferrer noopener">attack</a> on the pETH-ETH pool, the msETH-ETH pool, and the second attack on the CRV-ETH pool. 



In the case of the latter two, the exploits were frontrun by prolific MEV account <a href="https://etherscan.io/address/0xc0ffeebabe5d496b2dde509f9fa189c25cf29671" target="_blank" rel="noreferrer noopener">coffeebabe.eth</a>. This address previously <a href="https://etherscan.io/tx/0x7c68304cd55a36ee61fb4ca1f10fca5d2a0d6bf0103f28d61345fb33c6c8c61c" target="_blank" rel="noreferrer noopener">attempted</a> to communicate with Sushi to return funds after frontrunning another exploit months ago. 



Their address remained active throughout the ordeal, executing trades on popular memecoins in addition to frontrunning the attacks, implying that the frontruns might have occurred autonomously by the account without active knowledge on the part of the account owner.&nbsp;



Curve <a href="https://etherscan.io/tx/0x65670d8e4f08d56971d476b0c68ca745b0749ec7f79f9b79d993ef47cc91b9c6">communicated</a> on-chain with Coffeebabe.eth who expressed intent to move exploited funds to cold storage, as well as their wish to return funds to affected parties.


<div class="wp-block-image">
<figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1956" height="470" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/07/Screenshot-2023-07-31.jpg?w=1024&amp;h=1024" alt="" class="wp-image-63333" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/07/Screenshot-2023-07-31.jpg?w=1956 1956w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/Screenshot-2023-07-31.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/Screenshot-2023-07-31.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/Screenshot-2023-07-31.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/Screenshot-2023-07-31.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/Screenshot-2023-07-31.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/Screenshot-2023-07-31.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/Screenshot-2023-07-31.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/07/Screenshot-2023-07-31.jpg?w=80 80w" sizes="auto, (max-width: 1956px) 100vw, 1956px" /><figcaption class="wp-element-caption">Message embedded in on-chain transaction</figcaption></figure></div>


As of roughly 8:00 pm ET coffeebabe.eth <a href="https://etherscan.io/tx/0xb76754124fdde090f25129105ed2907e3c62e0db87ecb8ffcefcb1dede0954fd" target="_blank" rel="noreferrer noopener">returned</a> the funds from the second CRV/ETH pool exploit.



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Curve suffers $70M exploit, but damage contained

Bessie Liu

An unidentified trader, believed to be Mango Markets exploiter Avraham Eisenberg, accumulated a roughly 92 million token loan of CRV, the native token of Curve Finance, over a period of six days. But rather than pay back the loan, <a href="https://blockworks.co/news/curve-stablecoin-crv-loan" target="_blank" rel="noreferrer noopener">the trader allowed a total of about $63.6 million in USDC collateral to be liquidated</a>, Tuesday.



Assets on Aave each have a liquidation threshold — a percentage at which a loan will be considered undercollateralized if reached.&nbsp;



In this latest case, the liquidation threshold for USDC was <a href="https://docs.aave.com/risk/v/aave-v2/asset-risk/risk-parameters" target="_blank" rel="noreferrer noopener">88%</a>, which meant that once the value of the borrowed CRV rose above 88% of the USDC collateral supplied to Aave, liquidators stepped in to sell the USDC, buy back CRV and close the debt position.



But there was a problem: There wasn’t enough CRV liquidity to allow that to happen expeditiously. Instead, the position was closed over the course of 50 minutes through <a href="https://etherscan.io/tokentxns?a=0x57e04786e231af3343562c062e0d058f25dace9e&amp;ps=100&amp;p=1" target="_blank" rel="noreferrer noopener">385 individual</a> mini-liquidation transactions.



This left Aave with 2.64 million CRV, roughly $1.7 million, in bad debt — borrowed CRV that will never be repaid.&nbsp;



An Aave team member said that this deficit can be covered with the protocol’s treasury holdings.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">First of all, the bad; of course leaving bad debt is never pleasant. It is a small amount and still a fraction of the tvl of the protocol. The governance has many means to cover it without incurring in any liquidity problem. But, it&#39;s a (relatively cheap) lesson 🔽&mdash; thΞ3d.lens.eth( 👻, 👻) (@The3D_) <a href="https://twitter.com/The3D_/status/1595122277854904325?ref_src=twsrc%5Etfw">November 22, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Aave’s native token (AAVE) dipped to roughly $50 as the protocol began to accrue bad debt, but has since fully recovered, trading at almost <a href="https://blockworks.co/prices" target="_blank" rel="noreferrer noopener">$56</a> at the time of writing, according to data compiled by Blockworks.



This latest exploit, however, poses a big question for Aave, Matt Fiebach, a Blockworks research analyst, said.



“The scary part about the situation is not that Aave took a hit for $1-$2 million in bad debt but rather the same design flaw is exploitable with other tokens,” Fiebach said.



Blockworks asked Eisenberg if, in his view, Aave was vulnerable to a similar attack, to which he responded, “I do not view this as an attack on either side.”



Eisenberg declined to comment further on his role in the trades, if any, except to note, “it’s a matter of public record that a founder of Curve had a nine-figure, leveraged-long CRV position on Aave.”



Last week, Eisenberg <a href="https://twitter.com/avi_eisen/status/1593078192033918977" target="_blank" rel="noreferrer noopener">called</a> Curve a “ponzi,” deriding its CRV-emitting liquidity incentive mechanism. Curve&#8217;s founder, Michael Egorov, is <a href="https://etherscan.io/address/0x7a16ff8270133f063aab6c9977183d9e72835428" target="_blank" rel="noreferrer noopener">known to have</a> a nine-figure CRV stash on deposit in Aave that could become vulnerable if the price of CRV fell sharply.



Although it is uncertain what the next steps for Aave are, the protocol <a href="https://twitter.com/AaveAave/status/1595168980993556480?t=xNRSVZ7Q_lX1RmoKNgrFmQ&amp;s=31" target="_blank" rel="noreferrer noopener">tweeted</a> that the community would be initiating discussion in response to this incident.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">1/6 We want to address the cycle of liquidations that occurred in the CRV pool on the Aave Protocol today. The liquidations were successful (and worked as designed), but unfortunately, the size of the position left some excess debt within the protocol.&mdash; Aave (@AaveAave) <a href="https://twitter.com/AaveAave/status/1595168980993556480?ref_src=twsrc%5Etfw">November 22, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



It is possible that the protocol will make changes to its liquidation threshold — as <a href="https://governance.aave.com/t/discussion-reducing-long-tail-asset-risk/10748?u=monet-supply" target="_blank" rel="noreferrer noopener">proposed</a> by community contributor <a href="https://twitter.com/MonetSupply" target="_blank" rel="noreferrer noopener">monetsupply</a> — as a lower liquidation threshold correlates to less bad debt collected.&nbsp;



The community could also choose to implement limitations on the number of illiquid coins that can be borrowed on the platform.&nbsp;



Another option is to curtail rehypothecation.



Unlike some other lending markets such as Fraxlend or Silo, Aave rehypothecates collateral posted by its clients — meaning that it uses tokens posted on its platform and lends them out to others.&nbsp;



Although this increases capital efficiency — as more tokens can be borrowed — the protocol then faces the risk of not being able to liquidate collateral in the event of a price drop.



The Aave community <a href="https://governance.aave.com/t/discussion-reducing-long-tail-asset-risk/10748?u=monet-supply" target="_blank" rel="noreferrer noopener">will likely</a> be implementing short-term action to prevent further exploits.&nbsp;



“Speed is [essential] on this issue,” community member jarnMod <a href="https://governance.aave.com/t/discussion-reducing-long-tail-asset-risk/10748?u=monet-supply" target="_blank" rel="noreferrer noopener">wrote</a>. “Please consider quick and decisive reaction to the problem…If you can’t solve it [outright], at least mitigate this risk or communicate more.”



An Aave spokesperson declined to comment beyond the public tweets on the incident.



This story was updated on Nov. 22, 2022, at 6:15 pm ET.



Macauley Peterson contributed reporting.



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Aave

Feature or Flaw? Aave Left With $1.7M in Bad Debt

Macauley Peterson

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, <a href="https://blockworks.co/news/mango-dao-readies-42m-to-make-users-whole">previously linked to the controversial exploit</a> of Mango Markets on the Solana network, <a href="https://twitter.com/LlamaCollege/status/1594695900634284033">based on Discord discussions</a> related to the trade.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Mango &#39;very profitable trading strategist&#39; <a href="https://twitter.com/avi_eisen?ref_src=twsrc%5Etfw">@avi_eisen</a> has an $8m short on CRV.<a href="https://twitter.com/CurveFinance?ref_src=twsrc%5Etfw">@CurveFinance</a> founder <a href="https://twitter.com/newmichwill?ref_src=twsrc%5Etfw">@newmichwill</a> has $48m of CRV supplied on Aave with a liquidation price of .259 Yesterday they had an interesting discussion in the Convex discord. 🦙🏫 ↓ <a href="https://t.co/t28vN9l2PZ">pic.twitter.com/t28vN9l2PZ</a>&mdash; LlamaCollege (@LlamaCollege) <a href="https://twitter.com/LlamaCollege/status/1594695893638598657?ref_src=twsrc%5Etfw">November 21, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



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.



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/T01qGlFxSZpUAKbSfzoFRVSHEjE4qTrqvPTMVfc_bfqWUBYTnjd26wtWX0wSeMS0m-ZkHUcKhYBt8GV38-F-Nep2INNBdFXy7PrCZ7flnp3HgIOx0nifipwB_ScF90dcx8MxVjv1mbpGPzKVNNxaQpYzHz6j2a2JWHqajN_FT6N-tv8_LKCI0ZflaqgQMw" alt=""/><figcaption class="wp-element-caption">Trader&#8217;s position on Aave&#8217;s V3 Ethereum market as of 12:20 pm ET</figcaption></figure>



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&#8217;s because the availability of spot CRV was limited enough that the value of <a href="https://blockworks.co/price/crv" target="_blank" rel="noreferrer noopener">CRV jumped</a> to a high of around $0.71 as the position was unwound, data collected by Blockworks shows.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The attack on <a href="https://twitter.com/AaveAave?ref_src=twsrc%5Etfw">@AaveAave</a> is over and the protocol is left with 2.64 million CRV in bad debt, currently valued at almost $2 million. Aave will now have to liquidate enough AAVE from from the safety module to buy back 2.64m CRV. <a href="https://twitter.com/avi_eisen?ref_src=twsrc%5Etfw">@avi_eisen</a> &#8211; the black hat financial engineer <a href="https://t.co/W4j75RymMb">pic.twitter.com/W4j75RymMb</a>&mdash; Matt Fiebach 🟪 (@MattFiebach) <a href="https://twitter.com/MattFiebach/status/1595118515203502084?ref_src=twsrc%5Etfw">November 22, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<h2 class="wp-block-heading">The Curve Finance stablecoin</h2>



Michael Egorov, Curve’s founder, previously <a href="https://blockworks.co/news/curve-stablecoin-is-in-the-works-despite-regulatory-scrutiny" target="_blank" rel="noreferrer noopener">said</a> the stablecoin will maintain its peg to the US dollar through overcollateralization.



Its <a href="https://github.com/curvefi/curve-stablecoin/blob/master/doc/curve-stablecoin.pdf" target="_blank" rel="noreferrer noopener">latest white paper</a> 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.&nbsp;



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 <a href="https://twitter.com/0xMaki/status/1595122398155927552" target="_blank" rel="noreferrer noopener">is interesting</a> — it appears to have caused a sharp rise in the price of CRV, putting the collateral for the trader’s loan in danger.



<figure class="wp-block-image"><img decoding="async" src="https://lh5.googleusercontent.com/fVehUH7bBg1hZMfw3ocrLz-tYE6-d2ZpmC3UKpCmZE-PYZeYrxoNR23Jr2tFd-P1fK38BIPaBTjK-qkUXMb38jlCDigAJlenVTC25v3NCXEEkZFfoewfcdGtFMGvpN_i_ZooCku51l4OFJsKMwX6xajSxibNqL-a82TjsV84yjEl8trlc6oR38A69LrcuQ" alt=""/></figure>



The owner of the wallet borrowing CRV <a href="https://etherscan.io/address/0xba529566855d9d0bf3de1cc988e5f529f92bd80c#tokentxns" target="_blank" rel="noreferrer noopener">transferred the tokens to OKX</a>, a Seychelles-based cryptocurrency exchange and derivatives exchange, but the subsequent use of those tokens is not known.



Eisenberg&#8217;s Twitter account <a href="https://twitter.com/avi_eisen/status/1595024418837000199" target="_blank" rel="noreferrer noopener">posted</a> that he was &#8220;taking the day off to spend time with family&#8221; but that appears to have been meant ironically, as his next tweet indicated he was very much monitoring the situation.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Couple more liquidations then up only&mdash; Avraham Eisenberg (@avi_eisen) <a href="https://twitter.com/avi_eisen/status/1595103248255717378?ref_src=twsrc%5Etfw">November 22, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



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.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><a href="https://twitter.com/search?q=%24CRV&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$CRV</a> drama TLDR: If Avi liquidated, AAVE has to buy 80m CRV onchain = price up If Mich liquidated, AAVE has to sell 180m CRV onchain = price to 0&mdash; Sotto ✨ (@sotto_eth) <a href="https://twitter.com/sotto_eth/status/1595007650408058880?ref_src=twsrc%5Etfw">November 22, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



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, <a href="https://blockworks.co/price/aave" target="_blank" rel="noreferrer noopener">data compiled by Blockworks</a> shows.



Aave&#8217;s team <a href="https://twitter.com/The3D_/status/1595123156821630976" target="_blank" rel="noreferrer noopener">expects to easily cover</a> 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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Someone Paid 600% Interest on $50M To Borrow CRV, Then Watched It Get Liquidated

Sam Martin

Bitcoin

Yearn Finance Launches YFI Buyback Program: Markets Wrap

<div id="highlights-block_617991074d6ee" class="highlights">
 <ul>
 <li>Even with the broader market sell-off today, CRV is up 55.45% over the last 30 days</li>
 <li>Curve is the second largest DeFi protocol by TVL and is the market leader in stablecoin exchange</li>
 </ul>
 
</div>



<a href="https://curve.fi" target="_blank" rel="noreferrer noopener">Curve Finance</a> (CRV) is a decentralized liquidity pool built on top of Ethereum, similar to Uniswap (UNI), but with a focus on the exchange of stablecoins. 



The main goals of Curve Finance are to facilitate extremely efficient trading, with low slippage and to provide a relatively low-risk and supplemental fee income for liquidity providers (LPs) without the risk of so-called impermanent loss — the opportunity cost of being an LP in volatile digital assets.



Despite the broader market sell off that occurred today, Curve has seen its TVL continue to expand as investors may be flocking to safety in stablecoins. The CRV governance token also trades at one of the lowest multiples when looking at the ratio of market capitalization-to-TVL, which currently sits at .09279.



<figure class="wp-block-image"><img decoding="async" src="https://lh3.googleusercontent.com/gjW2H_ZD2Vkxrzyxr43omJpvhw5-aHpu6Ue3WYbg3Q6LiGdz8EoYIGreZ1TNUh9Cb6UYIf31Z2d4wBXGmH9eLG3TQjJTEgTCJ14rAiM0esng62Pdcy8G3mfJ2Rw0ceQ7FYZlivBm" alt=""/><figcaption>Source: defipulse.com</figcaption></figure>



Over the past 30-day period, the CRV token has traded up 57.52% to $4.36 as of reporting. Some industry experts believe that the price action seen in CRV could be viewed as a precursor to a resurgence in DeFi.&nbsp;



“Curve is the backbone for a lot of other protocols that are farming CRV. For instance, Yearn is an integral part of Curve because a lot of the vaults are farming CRV. When the price of CRV goes up, it creates this reflexive loop where the higher the price goes, the higher the yield, and thus attracts more capital to be deposited by users.” Santiago Santos, prominent Web3 investor told Blockworks.



Santiago continued, “One of the unique components of CRV is this mechanism where users can lock their CRV in exchange for a boost in yield, which adds to this reflexive feedback loop.”



The way trading fees are set and allocated is voted on by the Curve DAO, which currently sit at .04% on all pools. Half of those fees accrue to LPs, and the other half is awarded to vote-escrowed CRV (veCRV) holders.&nbsp;



The veCRV token gives its holders access to participate in three different activities that are not open to CRV holders alone. These include participating in the Curve DAO, earning protocol trading fees, and boosting staking rewards, <a href="https://medium.com/coinmonks/investment-thesis-curve-dao-token-crv-796b68f13eba" target="_blank" rel="noreferrer noopener">according to</a> Coinmonks’ Andrew Krohn.&nbsp;



Because veCRV is locked for a predetermined amount of time (up to 4 years), an increase in veCRV supply results in a reduction of liquid supply and thus puts upward pressure on the CRV price, as Santiago alluded to previously. 



Currently, 47.6% of the CRV supply is locked up as veCRV as seen in the graph below:



<figure class="wp-block-image"><img decoding="async" src="https://lh5.googleusercontent.com/gXD2ZoXfF4YT-PUoMjLeCsE5QNKXq6d_9tEMWJsGm10NB6UTuVKlZkyH7ytYN7gEeVZJC50r6XwEqAd3b4cWB6SvsmbX5rh0TST3myIwkgYaxoiACQ4EG3Sa4mCRxoYJkdbg1iOU" alt=""/><figcaption>Source: defipulse.com</figcaption></figure>



The rise of <a href="https://www.convexfinance.com" target="_blank" rel="noreferrer noopener">Convex Finance</a> has also contributed to massive amounts of CRV being locked up for yield, with its TVL currently at $12.66 billion.



“So you have Curve itself, Convex (CVX), and then yield aggregating platforms like Yearn Finance (YFI) all working towards locking more of the CRV supply to increase user rewards (APY’s),” Joe DeTommaso, Investment Manager at CMS Holdings, told Blockworks.&nbsp;



As the supply of CRV becomes more illiquid the price goes up, yield aggregating platforms such as YFI see their APY’s increase, the fees generated and returned to token holders of the yield aggregators increases which in turn raises the price of the aggregators native tokens.