Curve Finance, the decentralized finance (DeFi) protocol, is facing another challenge in addition to recovering from a recent $47-million hack. Concerns have arisen among holders of the protocol’s token regarding a potential massive dump.
On August 1, Delphi Digital, a crypto research firm, revealed in a Twitter thread that Curve Finance founder Michael Egorov had taken loans backed by a significant portion of the circulating supply of Curve DAO (CRV).
These loans amount to around $100 million and are secured by 427.5 million CRV tokens.
One of the loans, on Aave, involves 305 million CRV supporting a 63.2-million Tether (USDT) loan.
Delphi Digital noted that if the CRV token’s price were to drop by 36%, the position could be liquidated at $0.3767, which is below the current trading price of CRV at approximately $0.5975.
On Frax Finance, Egorov holds 59 million CRV supporting a debt of 15.8 million Frax (FRAX).
The loan carries additional risks due to Fraxlend’s time-weighted variable interest rate, which doubles every 12 hours when the loan is at 100% utilization.
The interest rate can reach an alarming 10,000% in just 3.5 days, making liquidation a possibility regardless of the CRV token’s price.
To mitigate these risks, Egorov has been working to reduce the debt and utilization rate by paying 4 million FRAX in the last 24 hours.
However, users have been quick to withdraw their liquidity as soon as Egorov makes payments.
READ MORE: BNB Smart Chain (BSC) Hit by Copycat Attacks
To address this liquidity issue, Egorov implemented a Curve pool to incentivize liquidity in the lending market.
Within four hours of its launch, the pool attracted $2 million in liquidity and decreased the utilization rate from 100% to 89%.
The situation has drawn comparisons to FTX founder Sam Bankman-Fried using FTX Token (FTT) as collateral and raised concerns within the community, with some fearing that it could hinder the DeFi industry’s progress and discourage potential investors.
Cointelegraph attempted to reach out to Egorov for comment, but there was no immediate response.
In summary, Curve Finance’s CRV token holders are now facing worries about a potential massive token dump due to the significant loans taken by the protocol’s founder, backed by a substantial amount of CRV tokens.
Efforts are being made to manage the risks, but the situation has drawn attention and concern from the crypto community.
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