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The systemic risk underlying the Curve Finance protocol has not been fully addressed, and the protocol faces “another stress test” in February, according to a January 8 report from anonymous cryptocurrency investment analyst and X user DeFi Made Here. According to the report, a large number of Curve (CRV) tokens will become available for trading in the coming weeks, and the sale of these tokens could lead to a similar situation that occurred in August, when the CRV token was in danger of collapsing in price. However, DeFi Made Here also cautioned that this scenario is only a possibility.
According to research firm Delphi Digital, Curve Finance founder Michael EGOROV owed $100 mln to various DeFi protocols as of August 1. This debt was backed by CRV tokens, and critics have pointed to it as a risk to the Curve protocol and the DeFI system as a whole. However, when Curve was hacked for $62 mln in August, Egorov paid off some of his debts and the protocol seemed to have weathered the storm. At the time of the hack, the price of the CRV token was approximately $0.63. It has since fallen to $0.55, down 12.7%, according to data from CoinMarketCap.
In the report, DeFi Made Here suggested that this market lull may be masking a major weakness in the Curve protocol. The analyst claims that Egorov was close to liquidation in August, but knew that he could not keep his public promise to pay off debts if necessary. In response to this threat, Egorov decided to sell some of his CRV tokens to investors through over-the-counter (OTC) trading and use the cash to pay off debt. However, this tactic wouldn’t work if the investors who bought the coins dumped them on the market, so Egorov insisted on a “handshake agreement” whereby none of them would be sold until February 2024.
Image: Binance Academy
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