Will the Curve DAO Token (CRV) crisis deepen? Now there is this question in mind. Because there is a rumor of a black swan event around. Black swan means black swan. Today, it is used to describe surprise events that cannot be predicted in financial markets, cannot be explained by rational analysis, and have a significant impact.
Black swan activity risk and CRV crisis
CRV price is approaching liquidation levels in Aave and other DeFi protocols. However, concerns about a potential black swan event are growing. Concerns are rising due to lack of liquidity to sell significant amount of Curve DAO Token (CRV). This creates the risk that some experts are calling a potential black swan event, summarized in a thread written by OlimpioCrypto on Twitter.
There's a risk of a black swan event in DeFi.
As per Defillama, if CRV drops below $0.37, there's 300M CRV to liquidate in Aave -most from Curve's founder
The problem? There's not a single Exchange or DeFi protocol where one can sell such a large CRV amount.
Risks explained 🧵 pic.twitter.com/Ug12IsJ3et
— olimpio (@OlimpioCrypto) July 31, 2023
According to Defillama, the problem stems from the possibility of CRV falling below $0.37. In addition, this situation leads to the liquidation of 300 million CRV in Aave. Also, most of this purge comes from the founder of Curve. Curve’s founder has invested 300 million CRV as collateral in other lending protocols such as Aave. It also borrowed 60 million USDT. This approach was chosen because selling 60 million worth of CRVs on the open market would cause the price to drop.
6/13
Same story on centralized exchanges.
In Binance, there are 8M of limit orders for CRV at 0.30.
OKX has 1.3M CRV. pic.twitter.com/gNBl5RJmBt
— olimpio (@OlimpioCrypto) July 31, 2023
Curve’s status
Curve’s situation was made worse by a recent vulnerability in Vyper that allowed hackers to hack some Curve repositories. This event caused the price of the CRV to drop. It also brought the loans considered healthy even closer to the liquidation price. Lachlan Feeney, founder and CEO of Labrys, Australia’s largest onshore blockchain and Web3 studio, said: “The price of the CRV token has dropped rapidly. Also, interest rates are rising due to lenders fleeing the ecosystem while trying to reduce risk. All this devalues Egorov’s collateral. It also brings him closer to liquidation.” is emphasizing.
The limited CRV liquidity on centralized exchanges such as Binance and OKX further deepens the problem. This sheds light on what happens if the price drops below the critical threshold. Accordingly, it raises questions about how to liquidate 300 million CRV in Aave. However, there is no single exchange or DeFi protocol where such a large amount of CRV can be sold.
DeFi community is actively working
The DeFi community is actively working to address the CRV issue. Also, both Curve and Aave are collaborating to find solutions. On the other hand, Feeney makes the following statement:
“If the debt really needs to be liquidated, there isn’t enough liquidity in the system to facilitate the forced sale of $110 million of CRV tokens. That puts bad debts on credit platforms.”
Although a black swan event was not considered the most likely outcome, the non-zero risk triggered immediate action. If a protocol starts liquidating assets, the risk of cascading liquidation across the DeFi space increases significantly. At this stage the community hopes to prevent any purges from starting.
33737
