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The Aave community has started voting on three crucial proposals that could help significantly reduce the protocol’s exposure to Curve Finance’s CRV token.
Two out of the three proposals in question opened for voting on the 10th of August.
Details Of The Proposals
The move by the Aave community comes as it attempts to limit the risk posed to the protocol by the large borrowing position held by Michael Egorov, the founder of Curve Finance. On-chain risk management platform Chaos Lab put forward the proposals. According to the platform, volatility in Curve markets had considerably increased after the recent exploit suffered by Curve.
The CRV token is the native token of the decentralized finance (DeFi) protocol Curve Finance. Curve founder Egorov had used as much as 30% of CRV’s total market capitalization to take out nearly $60 million in loans on Aave. However, the Curve Finance hack significantly impacted the price of CRV, sending it plummeting. This made Egorov’s position vulnerable, potentially exposing Aave to a liquidation risk.
The voting on the proposals is set to continue until the 12th of August. The first proposal seeks to reduce the liquidation threshold by 6% for CRV on Aave v2. This could lead to user accounts becoming subject to liquidation upon approval. The second proposal disables borrowing of CRV tokens on Polygon v3 and Ethereum. This would make it impossible to short CRV through the Aave protocol.
The two proposals to limit Aave’s exposure have found overwhelming support in the community. So far, over 571,000 votes have been cast, with 100% of the votes in favor of limiting Aave’s exposure to CRV.
The Third Proposal
With fears surrounding Egorov’s loans, Aave’s community is also voting on a third proposal, voting for which ends on the 11th of August. The proposal, put forward by Aave Chan founder Marc Zeller, calls on the Aave treasury to purchase $2 million worth of CRV tokens from Curve Finance. Zeller’s reasoning for such a move is that it would signal that major DeFi players support Curve and the health of the larger DeFi ecosystem. However, this proposal has not gained as much support in the community, although a majority do support it. Currently, around 62% of votes favor the proposal, while 37% have voted against it.
The Curve Finance Exploit
Curve Finance suffered a major exploit at the beginning of the month, with hackers managing to siphon off millions worth of crypto. As a result of the hack, the protocol’s CRV token saw a significant price drop, casting a long shadow on the DeFi ecosystem. The decline in CRV’s value also put a $168 million lending position taken by Curve founder Michael Egorov at risk. If this position was liquidated, it could have disastrous consequences for the larger DeFi ecosystem, putting major protocols at risk. Following the exploit, crypto exchanges moved to suspend withdrawals, with Upbit among the first to act, suspending deposits and withdrawals of the CRV token.
“Today, certain vulnerabilities have been discovered in some of the stablecoin pools associated with Curve (CRV). As a result, CRV is currently experiencing significant volatility. We advise exercising caution when considering any investments related to CRV. To ensure the safety of digital asset transactions, we have temporarily suspended deposits and withdrawals for CRV.”
However, Curve and Egorov found support from prominent players in the crypto space. These include Power DeFi user DCF God, Jeffrey Huang, and Tron Foundation CEO Justin Sun. All have since stepped in and purchased CRV from Egorov, resulting in the principal value of Egorov’s loans dropping to $54 million. Justin Sun posted a message in support of Curve, stating,
“Excited to assist Curve! As steadfast partners, we remain committed to providing support whenever needed. Our joint efforts will introduce an @stusdt pool on Curve, amplifying user benefits. Together, we aim to empower the community and forge a decentralized finance!”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.