Problems with Curve Finance

In a recent video, we discussed that Curve Finance is one of the main asset exchange systems in the decentralized finance (DeFi) market. The reputation gained over the years has been the main incentive to raise new funds and increase the platform's volume.

The model for launching crypto projects differs from the classic one, but has similar mechanisms. Founders receive a portion of tokens from the total issued volume, which they can use after some time. You can draw an analogy with shares.

The founder of the Curve project, Mikhail Egorov, recently took out a $100 million loan secured by his CRV tokens, which he received as a reward for launching the project. After that, he bought a mansion in Australia, which caused outrage in the community. At the same time, some teams from previous projects accused him of not paying off his debts. All this caused the price of CRV to fall, which has been falling for quite some time.

On July 30, the project was hacked and more than $50 million was stolen. The founder began to cover this loss, but the panic fueled by influencers did its job - the price of the CRV token began to fall rapidly.

This is when the problems began. In the classical financial system, when the price of a collateralized asset starts to fall rapidly, the bank can demand its funds back. The same thing is happening now. Many protocols can take away the collateral after reaching a certain threshold if the project founder does not return the funds. This is a problem for the market because any liquidation of collateral is a sale, which will affect the entire DeFi sector.

At the same time, other stakeholders are starting to act, for example, the funder's lender Curve is now trying to put a spoke in the wheel to shake Yegorov out. They are starting to promote a proposal to raise the base funding rate for large loans to 200% per annum, which is VERY high for the markets. They are interested in getting back their 14.5 million stables.

I am glad to see that they are working on a solution - recently there was information that a potential attacker was found and they are trying to get in touch with him and start negotiating. The founder is working on it, and he is starting to reimburse the deposit. To do this, he is selling CRV tokens at a discount on the OTC market. One of the well-known buyers is Justin Sun. The proceeds are deposited into the collateral pool.

The situation is difficult, but quite manageable. We can see that work is underway to remedy this situation. In a bear market, people are very reactive to negative news. As an immediate example, we can recall the recent correlation between USDT/USDC/DAI or the situation with the collapse of SVB bank and the blocking of a small amount of USDC collateral.

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