The Risky Loans Taken by Curve DAO Founder

The Risky Loans Taken by Curve DAO Founder

The governance token of the Curve decentralized autonomous organization (DAO), CRV, suffered a 12% drop on June 15th. This occurred after reports surfaced that the founder, Michael Egorov, had taken out risky loans on Aave. These loans were deposited across multiple decentralized lending protocols and amounted to around $246 million worth of CRV. This accounts for 50.5% of the token’s circulating supply. DefiLlama data shows that CRV faces a liquidation threat of $107 million on Aave if its value falls below $0.37.

Short Squeeze

The negative bets on CRV have risen, providing fuel for a possible quick upside move. The open interest volume for CRV perpetual swap contracts has increased since the revelation of Egorov’s loans. As the short side gets crowded, it creates an opportunity for buyers to hunt their stop losses. This phenomenon is known as a short squeeze. It occurs when an asset’s price moves quickly in the opposite direction of short players as they rush to protect their positions or buy the asset to close their positions.

Technical Analysis

The CRV/USD pair could find support around the 2022 low between $0.53 and $0.40. Given that a quick recovery is possible from a short squeeze, the price can tag the 50-day moving average at $0.82. To the downside, a breakdown of this support level could see the sell-off extend towards the 2021 low near $0.32. At the time of publishing, CRV was last trading at around $0.59. The CRV/ETH token pair looks particularly weak, as the pair recorded a new all-time low. The pair appears to be following a descending pattern, which suggests a likelihood of a rebound from the 0.0032 ETH level.

Curve’s Revenue Stats

Curve’s revenue statistics are also not favorable towards buyers. The platform’s fees declined significantly after the FTX collapse in November 2022, reducing CRV’s yield over time. CRV stakers are paid 50% of Curve’s revenue from trading fees. However, the fees have remained near two-year lows in recent months. Another way CRV tokenholders accrue value is through bribes earned from voting for directing rewards toward specific pools. Similar to trading fees, the earnings through bribes have also remained near a one-year low.

Curve’s liquidity has declined significantly over the recent months, making CRV susceptible to violent price swings. Crypto research firm Kaiko found that CRV’s liquidity has declined significantly over the year, to the extent that an $800,000 order can move prices by 2%.

There is a lot of uncertainty around CRV as it faces liquidation risk from a $264 million CRV-collateralized decentralized finance loan on Aave. However, the possibility of swift short-term upside is brewing as futures traders crowd the short side of the trade. The decrease in CRV’s market liquidity further adds to the risk for traders as the token is exposed to high volatility.

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