Curve Finance has smooth liquidity, but CRV has fallen 28%
Curve Finance's smooth liquidation method managed to successfully manage a real-world test in a recent hack, but its native CRV token price fell more than 28 percent amid the upheaval.
Despite the significant drop in CRV value, Curve Finance's liquidation process worked as intended.
RELATED: Curve Finance Founder's $100M Debt Could Spark DeFi Implosion: Report
Management of liquid risks
According to onchain data, the founder of Curve Finance, Michael Egorov, faced a huge pressure of liquidation when the price of CRV token dropped on June 13.
Egorov's trading history shows attempts to control debt positions by carrying out multiple liquidations in a short period of time.
It has also developed decentralized finance (DeFi) platforms such as Inverse Finance and Curve.fi for payments and payments.
Related: Curve Finance awards $250K for re-entry exposure
The smooth liquidity method is part of Curve Finance's Lending-Liquid Automated Market Maker Algorithm (LLAMMA).
LLMMA soft liquid method
This method ensures that liquidations occur without creating “bad debts” – debts that cannot be repaid or extinguished with profits.
In the official L.M.M.M.M.M.M.
“Unlike normal liquidation, which has a single liquid value, LLAMMA has multiple liquidation limits (represented by bands) and will continuously liquidate the container if necessary.”
However, the document also added that “positions in soft-liquidity/de-liquidity are incurring losses by selling and buying collateral.”
“If the position is not soft liquidity, no losses will occur. These losses will reduce the health of the loan. Once the user's health is 0%, the user's position may experience severe liquidity, which will close the loan.”
Related: Curve Finance Founder Cuts Debt to $42.7M, Refinances Entire Aave Loan
The market has reached a steep learning curve
While the countermeasures worked as intended, the market reacted strongly to the incident, which saw CRV prices fall by more than 28 percent in the last 24 hours.
This news follows Cointelegraph's previous coverage of Curve Financial's fundamental “systemic risks” — specifically, Egorov's debt obligations.
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