When the tree falls, the monkeys scatter? After the Curve crisis, the lending platform cuts at the speed of light
Curve crisis leads to lightning-fast cuts in lending platform
Author: How About
After the Curve incident in the past two days, the DeFi sector is facing a major crisis of confidence. The lending platforms related to Curve founder Michael Egorov’s personal debt have been on edge these days.
Egorov has taken a series of actions to reduce the risk of liquidation, such as launching the crvUSD/fFRAX pool on Curve, which in turn affects the debt interest rate of the CRV/FRAX pool on Fraxlend, and selling a large amount of locked CRV for 6 months through OTC to repay the debt. According to on-chain analyst Yu Jin’s monitoring, as of 22:00 on August 2nd, Egorov has sold a total of 59.5 million CRV tokens, exchanging them for $23.8 million in funds.
The Curve incident seems to have turned around (at least for DeFi). But the four core lending platforms involved in the incident, Aave, Fraxlend, Abracadabra, and Inverse, are busy taking preventive measures and proposing changes to the Curve pool in order to reduce the risk of future bad debts and cascading liquidations.
Odaily Planet Daily has made some inquiries into the latest actions of these four platforms and shares their improvement directions and progress as follows.
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Aave, as the party with the largest debt position, has the most noteworthy follow-up measures. How to avoid the impact of large positions on the normal operation of the platform?
In fact, a liquidation risk occurred from the end of May to mid-June this year. Egorov first purchased a luxury mansion, was then sued by three venture capitalists, and later borrowed a total of $71 million stablecoins from Aave (according to Lookonchain statistics), causing panic in the market.
In mid-June, ChaosLabs initiated a proposal on Aave to gradually suppress such overheating behavior by reducing the CRV LT by 3%. The proposal was passed, but the effect was not significant. (On June 15th, CRV fell to its lowest price of $0.558 for the month.)
Later, Gauntlet suggested freezing CRV on Aave’s governance forum and setting the CRV LTV to 0 on Aave v2. The details are as follows:
Unfortunately, this proposal did not pass due to insufficient votes and large-scale opposition. Some voices on Aave’s governance forum at the time believed that this approach was not decentralized enough and that it should not selectively restrict the other party just because Egorov’s borrowing scale is larger.
Recently, the Aave governance forum has reopened discussions on the Curve incident, hoping to minimize the risks to the Aave platform through previous proposals. This measure can to some extent limit the use of the CRV pool on Aave.
However, Emilio in the governance forum believes that even if the LTV is set to 0, it can still be bypassed using flash loans.
In response, dForce founder Mindao explained to Odaily Star Daily: “LTV checks require checking account equity. Flash loans involve borrowing and repayment within a single transaction, which does not affect changes in account equity. You can continue borrowing through flash loans (this may be overlooked in the V2 mechanism). However, this only allows flash loans to bypass the restriction, but it can actually limit the addition of non-flash loan borrowings. It seems that this person is finding a convenient excuse to oppose any adjustments.”
As the party with the highest risk to Egorov in the liquidation turmoil, Fraxlend forced Egorov to repay the debt on their platform by adopting risk isolation and special interest rate adjustment mechanisms. Fraxlend’s better mechanism puts it in a prioritized position for repayment in this liquidation turmoil.
For the specific details and advantages of Fraxlend’s interest rate adjustment mechanism, please refer to the Odaily Star Daily article “Reached 10,000% in three and a half days? How is Fraxlend’s interest rate calculated?”, which will not be repeated here.
In this incident, Abracadabra also acted quickly and proposed an emergency proposal to freeze the CRV market liquidation through AIP #13.4. Although there were only 5 voters, the lack of decentralization in governance at this time actually reflects the advantage of decision-making efficiency.
Subsequently, Abracadabra launched AIP #13.5: Proposal for the adjustment of interest rates for CRV LP. This proposal redefines the way interest is obtained and determines the amount of interest deducted based on the corresponding interest rate and collateral ratio. The specific interest rates are shown in the following figure:
Currently, DeBank data shows that Egorov still needs to repay approximately $12 million in MIM.
With Abracadabra’s new proposal, there is little time left for Egorov, which is less than 46 hours. The situation is not optimistic. Although this move is domineering, it is effective and aims to quickly reduce its own bad debt risk. Egorov is highly likely to continue to repay the MIM debt through off-exchange OTC.
On the evening of August 2, community member edo proposed a proposal regarding the Curve incident. Compared to the previous three, Inverse has relatively low vaults, and the content of the proposal is relatively moderate – reducing the collateral ratio of CRV, cvxCRV, st-yCRV, cvxFXS and increasing the liquidation incentive for cvxCRV, st-yCRV, cvxFXS. The specific details are as follows:
Inverse’s move does not seem to have a strong performance, and the community has not yet voted on the proposal.
1. Aave is the most decentralized, but its efficiency is low. The latest proposal mentioned earlier will enter the on-chain governance process today.
2. Fraxlend has inherent advantages and strong risk resistance.
3. Abracadabra reacts quickly, and the new proposal has a strong force, but the decentralization of governance is not good.
4. Based on the proposals from community members, Inverse’s efforts seem to be low, and no vote has been cast yet.