Amidst the increased uncertainty surrounding Curve exposure in decentralized finance protocols, Marc Zeller, the founder of Aave Chan, has put forth a proposal for Aave Treasury to purchase $2 million worth of CRV tokens in USDT from Curve Founder Michael Egorov. This proposal aims to strengthen the support for DeFi within the community, as well as strategically position Aave’s decentralized multi-collateral stablecoin GHO.
Zeller’s proposal suggests that acquiring $2 million worth of Curve DAO Tokens (CRV) can provide liquidity for Aave’s GHO stablecoin. With the current price, this acquisition would yield approximately 5 million CRV tokens, which could be locked as veCRV for a period of four years. These tokens could then be utilized for voting purposes on the Curve platform, allowing users to provide liquidity for token pairs involving GHO.
The proposal emphasizes the financial stability of Aave’s DAO treasury and the anticipated decrease in service provider costs for the 2023-2024 budget. It highlights the importance of maintaining a conservative approach in managing the DAO treasury holdings, while strategically acquiring CRV tokens.
The Aave community’s response to the proposal has been diverse. While some members expressed concerns about the DeFi protocol’s exposure to the risks of CRV liquidation, others viewed the proposal as an opportunity to reduce such risks and promote the growth of GHO stablecoin. Critics argued that the proposal prioritized a user who had taken excessive leverage over the best interests of Aave stakeholders and lenders. This raised questions about the decentralized nature of such a decision within the realm of decentralized finance.
Additional CRV Token Purchases
In a separate development, Jun Du, the co-founder of Huobi, acquired 10 million CRV tokens for $4 million from Curve Finance founder Michael Egorov. These additional purchases further illustrate Egorov’s efforts to manage his extensive loan positions, as he currently has outstanding loans exceeding $100 million from multiple lending protocols. Out of this amount, $70 million is in USDT on Aave v2, with CRV serving as collateral.
Aave’s risk parameters specify that if the price of CRV drops to around $0.32, it will be at risk of liquidation. Considering that CRV is currently trading at $0.59, a price decline of approximately 60% would trigger liquidation. In such a scenario, the borrower’s collateral would be liquidated to repay the borrowed assets, resulting in the sale of CRV for USDT and potential bad debt.
Following the exploit on the Curve protocol, Egorov has been actively selling millions of dollars’ worth of CRV tokens through over-the-counter trades. This selling spree is an attempt to manage his significant loan positions and mitigate potential risks associated with holding CRV.
The proposal for the Aave Treasury to acquire $2 million worth of CRV tokens from Curve Founder Michael Egorov presents an opportunity for Aave to strategically position itself in the Curve wars and enhance the liquidity of its GHO stablecoin. While the proposal has drawn mixed reactions from the Aave community, it reflects the ongoing efforts to navigate uncertainties in decentralized finance protocols. The additional CRV token purchases by Huobi’s co-founder and Egorov’s selling spree highlight the challenges and risks faced by lending protocols and the importance of managing exposure and collateral risk effectively.