During the general decline in the cryptocurrency market, the most unfortunate player seems to be CRV.
This morning, Arkham revealed that Curve founder Michael Egorov has collateralized $140 million worth of CRV in stablecoins (mainly crvUSD) across five accounts in five protocols, borrowing $95.7 million. Among them, Michael has borrowed $50 million in crvUSD on Llamalend, and Egorov’s three accounts hold over 90% of the crvUSD borrowed on that protocol.
Arkham pointed out that if the price of CRV drops by about 10%, these positions may start getting liquidated. Subsequently, as the decline in CRV continued, dropping below $0.26 at one point to reach an all-time low, the CRV borrowing positions on multiple addresses owned by Michael gradually fell below the liquidation threshold.
In the past, Michael would usually add to his positions to save himself from liquidation, but this time, he seems to have “given up”.
According to Ember data monitoring, Michael Egorov’s main address has already started getting liquidated on Inverse. Additionally, according to Lookonchain, Michael Egorov currently holds 111.87 million CRV tokens ($33.87 million) as collateral on four platforms, along with $20.6 million in debt.
The Crisis Two Months Ago
The crisis surrounding CRV was already evident two months ago when Michael’s borrowing positions fell below the liquidation threshold, but at that time, Michael was not liquidated, and there was no sign of any remedial action from Michael.
On April 14th, as the market dropped, the price of CRV was also affected, dropping to $0.42. Curve founder Michael Egorov’s borrowing positions once again entered the danger zone. According to Ember monitoring, Michael has collateralized a total of 371 million CRV tokens across six lending platforms through five addresses, borrowing $92.54 million in stablecoins, with the most risky position being on silo lending platform.
From November 2022, when the “on-chain bear” ponzishorter attempted to short the CRV token, to the end of July 2023 when Curve was attacked due to a Vyper compiler bug, Michael took frequent actions to save his positions, stirring up the DeFi pot and turning it into a “DeFi defense battle”.
The first “defense battle” may have been Michael’s short selling, causing the CRV price to rise instead of fall, leading to profits in the battle against the “shorts”. The second “defense battle” leveraged the power of OTC trades off-chain, reducing the holdings but gaining support from powerful players like Wu Jihan, Du Jun, Justin Sun, and institutions like DWF. Both of CRV’s defense battles can be considered successful.
As the debate rages on about the relationship between silo and Curve, the essence of the controversy lies in the fact that silo did not liquidate CRV. Insiders suggest that due to the use of Chainlink oracles for CRV positions on silo, there may be a delay in price updates compared to debank, casting doubt on whether the oracles track the liquidation prices.
According to Chainlink data, the recorded price of CRV fell below $0.4 between 5:30 a.m. and 6:00 a.m. on April 14th, ranging from $0.36 to $0.38. Subsequent checks on dexscreener, coingecko, tradingview, coinmarket, and other data sources showed CRV dropping to around $0.36 on the 30-minute charts.
As the lowest price of CRV occurred in the early hours, it is currently impossible to verify if the health factor was reset at that time. However, regardless of what happened between CRV and the lending platforms that night, the fact remains that none of Michael’s borrowing positions were liquidated.
The current crisis has brought attention to silo’s manual liquidation mechanism. Due to the open nature of silo’s liquidation system, individuals can choose between manual or automated liquidation. When asked if opting for manual liquidation would prevent automated liquidation, insiders suggest that manual liquidation is just a personal option provided by the platform, and individuals still have to compete with machines when dealing with a pending liquidation debt, often losing to the machines.
The key factor for triggering liquidation lies in whether the collateral price has truly dropped to the liquidation value.
The “Price Game” of Liquidation Mechanisms
According to silo’s documentation, the lending protocol has a liquidation application that the core team uses to monitor risk positions and liquidate positions that are undercollateralized if the liquidation robots (including Silo) fail to act first.
On April 19th, CRV once again dropped to $0.4, and based on the addresses provided by Ember, the addresses starting with 0x 9, 0x 4, and 0x 7 held by Michael on silo had health factors below 0.1, indicating imminent danger.
According to silo finance’s collateral factor table, in the silo protocol, the loan-to-value ratio (LTV) for CRV is 65%, with a liquidation threshold (LT) of 85%. This means that Michael’s liquidation price on silo is in the range of $0.41 to $0.44, theoretically reducing the health factor to zero.
Inquiries made by BlockBeats to the project team revealed that their price tracking is not just based on oracle prices but also uses a weighted average algorithm. This implies that the liquidation price of a token may be influenced by the prices of the borrower’s other assets, making it necessary for the CRV price drop alone to not be enough for liquidation. However, the project team did not respond to questions about liquidity supply issues.
Insiders also mentioned that in situations of high market volatility, the liquidators need to consider slippage issues, which involve both crvUSD and CRV slippage. It is normal for lending protocol machines to not liquidate during periods of significant price fluctuations.
Was Michael “Cut” this Time?
The liquidation of tens of millions of dollars in borrowing positions has a significant impact on the overall liquidity of the crypto market. While the crisis in April was averted due to the defense mechanisms of lending platforms, this time, with CRV dropping below $0.26, the crisis has finally arrived.
Liquidators Profiting
The new low price has raised questions about whether it is a good time to buy, but at least in the case of CRV, the liquidators have already started profiting.
According to ai_ 9684 xtpa monitoring, the address starting with 0xF07…0f19E is one of the main liquidators of Michael’s positions. In the past hour, this address has liquidated 29.62 million CRV tokens at an average price of $0.2549, spending 7.55 million FRAX tokens. The tokens have now been deposited into Binance at an average price of $0.2792.
As liquidators, a more economically viable approach may be to first open a short position on CRV on Binance (or borrow and sell tokens) before liquidating, ensuring that the tokens obtained from liquidation are used to close the short position (or repay the debt) without being affected by price fluctuations.
Even if 0xF07…0f19E does not follow this approach, simply selling at the average price of deposit can still yield a profit of $720,000.
Investors Facing Losses
On the other side of the spectrum, investors are facing a disaster.
On one hand, the price drop has led to liquidations on other lending platforms, with borrowers on Fraxlend experiencing millions of dollars in liquidations. According to Lookonchain, a user on Fraxlend was liquidated for 10.58 million CRV tokens ($3.3 million).
Compared to other platforms, Fraxlend’s liquidation mechanism is easier to trigger, as the risk isolation and dynamic interest rate mechanisms do not require any additional measures for Michael to proactively repay. In previous liquidation crises, Michael borrowed a large amount from Aave and sold tokens through OTC trades to repay the debts on Fraxlend.
On the other hand, early CRV investors are facing significant losses.
Since the CRV crisis last year, there have been remarks within the community about how Michael played a strong hand in Curve and shattered it. The most interesting aspect of this CRV crisis is the involvement of major investors who previously supported Michael.
After the theft of Curve in July last year, various OGs, institutions, and VCs came to the rescue. Wu Jihan, co-founder of Bitmain and Matrixport, stated on social media, “In the upcoming wave of RWA, CRV is one of the most important infrastructures. I have bought the dip, not financial advice.”
Huang Licheng confirmed on social media that he had purchased 3.75 million CRV tokens from Curve’s founder through OTC and pledged them in the Curve protocol. The next day, Justin Sun’s related address received 2 million USDT from the Egorov address and obtained 5 million CRV tokens.
Following this, projects like Yearn Finance, Stake DAO, and institutions like DWF joined the firefighting efforts for CRV.
Now, with CRV hitting an all-time low, Michael himself has not made any efforts to save the situation. As the community puts it, “The one who was cutting others finally got cut by Michael.”
