Curve financing debt will cause ‘one more stress test’ in February – analyst
The strategic risk at the heart of the Curve Financial protocol has not been fully resolved and the protocol will face “one more stress test” in February, according to a January 8 report from anonymous crypto investment analyst and X user Defy here.
According to the report, a large number of CRV tokens may be traded in the coming weeks, and the sale of these tokens may lead to a “same situation as in August” where the CRV token may fall in value. . However, DeFi Made Here cautions that this is the only possible scenario.
1/ $ CRV is a ticking bomb.
The Curve ecosystem is characterized by “questionable people/entities” and Mitch's ability to service his debt of $1.7 million per month.
I explain why I see a light at the end of the tunnel and how @0xSifu plays this game. pic.twitter.com/KPZ97JVNkm
— DeFi Made Here (@DeFi_Made_Here) January 8, 2024
According to their X profile, DeFi Made Here is an analyst for crypto investment fund Alphabet Capital and a consultant for Web3 developer Good Entry Labs.
Michael Egorov, founder of Curve Finance, As of August 1, crypto research firm Delphi Digital reported that $100 million was owed to various decentralized finance (DeFi) protocols. This debt is backed by CRV tokens, and critics have pointed to it as a risk to the Curve protocol and the DFI system as a whole. However, when Curve was expropriated for $62 million in August, Egorov paid off some of his debts, and the protocol appears to have weathered the storm. At the time of exploitation, the CRV token price was approximately $0.63. It fell 12.7% to $0.55, according to data from CoinMarketCap.
In their report, DeFi Made Here suggested that this stability in the market may be overshadowing the weakness in the Curve protocol. “The $CRV is a ticking bomb,” said the analyst. The ecosystem is “on ‘questionable persons/entities'” and Mitch's debt servicing capacity is growing at $1.7 million per month. [is becoming more difficult]He said.
Egorov, the analyst, said in August that he was “almost free” but “knew that he would not be able to keep his public promise to repay the debt if necessary.” In response to this threat, Egorov decided to sell some of his CRV tokens to investors in an over-the-counter (OTC) trade and use the cash to pay off his debt. However, this method would not work if the investors who bought the coins dumped them on the market, so Egorov insisted that none of the “handshake agreements” would be sold before February 2024. “$231M CRV sold at $92.M at $0.4 price with handshake agreement not to sell OTCed CRV before February 2024,” DeFi Made Here explained.
Counterparts of this business include market creators Wintermute and DW Labs, Tron Network developer Justin Sun, Web3 developer Jeffrey Huang (known as “Machi Big Brother”) and other crypto investors.
7/ The full list of peers is in the script below.
Includes: @wintermute_t@DWFLabs@dcfgod@mahakigbrother@justinsuntron
And others pic.twitter.com/08hwJpTykh
— DeFi Made Here (@DeFi_Made_Here) January 8, 2024
After Egorov successfully raised the money to pay off the loan, his faith in Kure was restored. However, Diffie Med Here claims that Egorov took out $75 million in new loans when the Silo Llama protocol launched in October. Silo Lama uses Curve's stablecoin, crvUSD, as collateral. Of the total, $45 million was borrowed, while the rest came from Fraxlend and other protocols, the analyst said.
Related: Curve Finance to Pay $49M in Compensation to Hacking Victims
One of the biggest providers of liquidity for these loans is DeFi developer Michael Patrin (known as “0xSifu”), the report said. Patryn is also “short” CRV, and may start “drawing liquidity from the pool and shorting more CRV” when OTC tokens become available for trading in February. This could again lead to a crisis in the Curve protocol, fearing Egorov's loan liquidations and negative effects on the entire Curve ecosystem. As a result, the protocol faces another upcoming “stress test.”
When the OTCed CRV becomes liquid, the curve must undergo one more stress test in the coming weeks. Unfortunately, founder debt puts a huge strain on the health of the entire Curve ecosystem and is a systemic risk.
However, DeFi Made Here says this scenario is just a possibility. Patrine may be a “good actor.” In this case, “the CRV will easily pay off the debt, continuing to provide for the payment of money [Egorov]And OTC buyers don't do the same. The analyst hopes that this optimism will be seen and that “the coming events will not affect the curve and the limitations of the CRV design will allow the ecosystem to survive.”
Curve is currently the seventeenth largest DeFi protocol, according to blockchain analytics platform DeFillama. More than $1.6 billion worth of crypto assets have been locked up in the contract.
