Curve DAO Token (CRV) recovering after founder repays debt amid liquidation crisis

Curve DAO (CRV) earlier today experienced a tumultuous period marked by significant liquidations and a steep price drop. This crisis resulted from a test of Curve Finance’s soft liquidation mechanism and was exacerbated by the extra large positions held by Michael Egorov, the founder of Curve Finance, resulting in a $10M bad debt.

However, recent developments, including Egorov’s repayment of a substantial portion of the debt and strategic measures to stabilize the token, have led to a slight recovery of the CRV price.

What we know so far about the Curve Finance liquidation crisis

The liquidation crisis that engulfed Curve Finance followed a real-world test of Curve Finance’s soft liquidation mechanism in a hacking attempt, that caused the price of CRV to plummet from $0.35 to $0.23, causing forced liquidations to occur.

The Curve Finance founder Michael Egorov was caught up in the crisis and faced $140 million in liquidations since he had borrowed $95.7M in stablecoins (mostly crvUSD) backed by $141M in CRV across five protocols.

The crisis was exacerbated by Egorov’s positions being too large for the market to handle, resulting in $10 million in bad debt.

Additionally, the high annual percentage yield (APY) on some of the loans, particularly the $50 million on a platform charging around 120% APY, compounded the problem.

The severe market disruption saw CRV’s market cap drop by 18% and 24-hour trading volume surge by 932%, reflecting the heightened activity as holders scrambled to mitigate their losses.

Curve DAO Token (CRV) recovers after repayment of the bad debt

In response to the crisis, Michael Egorov took decisive steps to stabilize the situation. He repaid 93% of the outstanding debt and announced plans to settle the remaining amount shortly.

The Curve Finance team and I have been working to solve the liquidation risk issue which happened today.

Many of you are aware that I had all my loans liquidated. Size of my positions was too large for markets to handle and caused 10M of bad debt. Only CRV market on…

— Michael Egorov (@newmichwill) June 13, 2024

In addition to repaying the bad debt, Egorov has also proposed a strategic 10% burn of the total CRV supply to address the broader market instability.

Egorov emphasized the importance of this move, suggesting that the token burn would mitigate the impact of the sharp price decline. Active participants in the burn proposal discussion would receive a 3-month Annual Percentage Yield (APY) booster as an incentive.

Egorov’s proposal comes as part of a broader strategy to manage the immediate financial strain and restore equilibrium in the market.

Despite these efforts, CRV’s price has yet to fully recover. At press time, the token was trading at $0.2905, having recovered from the low of $0.23.

However, the 24-hour trading volume has surged by 900.31% to $767.221 million possible as investors rush to dispose their CRV holdings in fear of further price declines.

Notably, this incident comes barely a month after Curve finance awarded a developer some $250k for identifying a critical vulnerability within the protocol and the Curve DAO Token (CRV) price had been recovering well from its post 2023 hack drop.

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