- Gauntlet, a risk management organization, raised concern about AAVE’s giant $176 million CRV position. The organization’s major focus was on the exposure and size of CRV and proactive measures to safeguard the AAVE platform from challenging situations.
- As Decentralized Finance (DeFi) is advancing, the need for the practices like risk assessment and monitoring is enhanced. The concept has become more popular among individuals as they make investments through DeFi lending platforms.
Over the last few days, a sizeable leveraged place in CRV tokens across chief DeFi lending protocols has held the attention of the space. On 16 June 2023, Michael Egorov, the decentralized exchange Curve Finance co-founder, observed an outstanding debt of $60 million in stablecoins secured by CRV worth $176 million. Egorov has used Defi’s most extensive lending protocol to collateralize his CRV on AAVE, with approximately $8 billion in Total Value Locked (TVL). Currently, the state is safe from liquidation. AAVE’s governance will freeze the CRV market on AAVE V2, responded by Gauntlet, which is a risk management company.
This simply means that no one else, including Egorov, can add more CRV to be utilized as collateral on the platform. In May 2023, CRV was down approximately 30% due to a rout in altcoins, which may result in renewed issues over a longstanding position. The simple intention of Gauntlet behind the response is to safeguard or mitigate the bad debt for AAVE. The situation would likely occur if the value of CRV declined to the position that the AAVE protocol must break up the state but is not up to so because of its thoroughgoing size.
CRV is too big to liquidate
It is required by a liquidator to repay the purchased asset to liquidate a position on AAVE, USDT, in this case. Afterward, the liquidator receives the collateralized CRV at a discounted price. It is challenging to liquidate Egorov’s Collateralized CRV in AAVE due to its immense size. It accounts for around 33% of the overall circulating supply of the token. To liquidate the entire position, the liquidator would not be up to selling the CRV profitably because of insufficient chain liquidity. Trying to sell around 100 million CRV on mainnet equals approximately a through of Erogov’s state and would pocket the value by 70%. Gauntlet reported reduced liquidity in CRV as enhancing the likelihood of inappropriate liquidations. The company further refused to comment on the recommendation when contracted by The Defiant.
The former head of communications, Andrew Thurman, doesn’t think it is to be expected that Egorov does not plan to reimburse the debt, as some individuals recommended on Gauntlet’s forum post. Over the Telegram, Thurman communicated to The Defiant that Egorov had effectively sustained that position prior, involving, at times, paying down partitions of the debt. As a result, around $3 million of repayments were identified on the chain data in the past day.
Aiham Jaabari, the co-founder of Silo Finance, commented that most traders have focused on Gauntlet’s post to observe the push down of the price of CRV. In AAVE V2, all the assets are pooled together, and Silo Groups are smaller groups of currency to be borrowed and lent against each other. However, Silo does not have enough USDT liquidity to migrate the AAVE V2 position for Egorov, stated Jaabari.
The purpose of Gauntlet’s to mitigate AAVE with bad debt is an inspiration of the ‘highly profitable trading strategy’ implemented last year by Avraham Eisenberg. In the execution, the trader pushed down the value of CRV by purchasing the asset against the position of collateralized USDC.
Avraham was testing to liquidate Egorov’s position by declining the value of CRV but, unfortunately, failed.