In the ever-evolving world of decentralized finance (DeFi), uncertainties often arise, leaving protocols to navigate uncharted waters. Amidst this climate of uncertainty, Aave Chan founder Marc Zeller has put forth a controversial proposal for the Aave Treasury to purchase $2 million worth of Curve DAO Tokens (CRV) from Curve Founder Michael Egorov. This move has sparked a wave of debate and has raised questions about the decentralized nature of DeFi.
Zeller’s proposal suggests that acquiring $2 million worth of CRV tokens would not only send a strong message of DeFi supporting DeFi but also strategically position the Aave DAO in the ongoing Curve wars. Additionally, this move would bolster the liquidity of Aave’s decentralized multi-collateral stablecoin GHO. With the current market price, this acquisition would translate to 5 million CRV tokens. Zeller further suggests that these newly acquired tokens could be locked as veCRV for a duration of four years, providing voting rights on the Curve platform and allowing Curve users to utilize them for liquidity provision.
The proposal has sparked mixed reactions within the Aave community. Some members argue that reducing exposure to CRV liquidation risk should be a priority for the DeFi protocol. These individuals believe that the proposed acquisition, oriented towards aiding a user who took excessive leverage, goes against the best interests of both Aave stakeholders and lenders. They question the decentralized nature of DeFi in such circumstances. On the other hand, a cohort of supporters believes that the acquisition would effectively de-risk the current CRV over-leverage situation and facilitate the growth of the GHO stablecoin.
The plight of CRV tokens in terms of liquidation risk is essential to understanding the context of this proposal. Michael Egorov, the founder of Curve, currently holds outstanding loans exceeding $100 million from various lending protocols. Among these loans, $70 million is in USDT on Aave v2, with CRV tokens offered as collateral. According to the risk parameters set by Aave, CRV faces liquidation when its price reaches around $0.32. At present, CRV is trading at $0.59, meaning a near 60% decline would lead to liquidation, resulting in the borrower’s collateral being sold to repay the borrowed asset.
Egorov’s CRV Selling Spree
Facing the imminent risk of liquidation, Egorov has been on a selling spree, offloading millions worth of CRV tokens through over-the-counter (OTC) trades. This selling spree aims to manage his multi-million loan positions and mitigate the potential fallout of liquidation. The exploit on the Curve protocol seems to have triggered this rush to sell and salvage Egorov’s position.
While the controversial proposal put forth by the Aave Treasury has sparked intense debate, it reflects the challenges and complexities that DeFi protocols face. Balancing the interests of stakeholders, lenders, and users is no easy task in a decentralized ecosystem. As the DeFi space evolves, it is crucial to continually evaluate and adapt risk parameters and acquisition strategies. The Aave Treasury’s proposal to acquire CRV tokens serves as a thought-provoking case study, shedding light on the intricacies and dilemmas in the decentralized finance landscape.
The proposal to acquire $2 million worth of CRV tokens from Curve Founder Michael Egorov has ignited a firestorm of debate within the Aave community. Some see it as a strategic move to bolster liquidity and de-risk the CRV over-leverage situation, while others question its adherence to the principles of decentralized finance. As the DeFi space continues to evolve, it is imperative to critically analyze and adapt strategies to navigate the ever-changing landscape of decentralized finance.