The Curve Finance protocol is facing potential systemic risks that have not been fully addressed, and it is expected to undergo another stress test in February, according to a report by an anonymous cryptocurrency investment analyst and X user known as DeFi Made Here, published on January 8. The report suggests that a significant number of Curve (CRV) tokens will become available for trading in the coming weeks, which could lead to a situation similar to what occurred in August, when the CRV token faced the risk of collapsing in price. However, DeFi Made Here emphasizes that this scenario is only a possibility and not guaranteed.
As of August 1, according to research firm Delphi Digital, Curve Finance founder Michael EGOROV owed $100 million to various DeFi protocols. This debt was collateralized with CRV tokens, and some critics have viewed it as a risk to the Curve protocol and the broader DeFi ecosystem. However, when Curve was hacked for $62 million in August, Egorov paid off a portion of his debts, and the protocol appeared to weather the crisis. At the time of the hack, the CRV token was priced at approximately $0.63. Since then, it has declined to $0.55, representing a 12.7% drop, according to CoinMarketCap data.
DeFi Made Here’s report suggests that the current market lull may be concealing a significant vulnerability in the Curve protocol. The analyst claims that in August, Egorov was close to liquidation but realized he couldn’t fulfill his public promise to pay off debts if necessary. To address this, Egorov sold some of his CRV tokens to investors through over-the-counter (OTC) trading and used the proceeds to settle his debts. However, this strategy would not work if those investors promptly sold the tokens on the open market. To prevent this, Egorov entered into a “handshake agreement” with the investors, stipulating that they would not sell their tokens until February 2024.
