Michael Egorov’s $100 Million Position, A Risk To Curve Finance And DeFi?

Following the recent exploit of Curve Finance pools, there have been genuine concerns about the stability of the decentralized exchange and the Decentralized Finance (DeFi) ecosystem. A new report has emerged, raising questions about Curve founder Michael Egorov’s $100 million loan positions.

These positions have garnered significant interest, as they are backed by about 47% of the entire CRV circulating supply. With the price of CRV dwindling, these debts appear to be at risk of liquidation, putting the Curve protocol, CRV investors, and the overall DeFi space on edge. 

On Tuesday, August 1, crypto research firm Delphi Digital released a series of tweets, detailing the loan positions being held by Michael Egorov. According to the report, the Curve Finance founder has around $100 million in loans across various lending protocols backed by 427.5 million CRV tokens.

Egorov has a 63.2 million USDT loan backed by 305 million CRV tokens on Aave.  Delphi Digital revealed that the position has a liquidation threshold of 55% and is eligible for liquidation at 0.3767 CRV/USDT.

For context, the CRV currently trades at $0.608595, according to CoinGecko data. This means that a 38% price decline will cause a liquidation of Egorov’s position on the Aave protocol.

Meanwhile, the Curve founder has 59 million CRV backing a loan of 15.8 million FRAX on Frax Finance. Although this debt is much lower than his Aave position, it poses a much more significant risk to CRV due to Fraxlend’s Time-Weighted Variable Interest Rate.

Delphi Digital also noted that liquidation of the Frax loan position can occur regardless of CRV’s price. According to the research firm, the loan is currently at 100% utilization, which allows the interest rate to double every 12 hours.

While the interest rate currently stands at 81.20%, Delphi Digital said that it can potentially increase to the maximum of about 10,000% APY in 3.5 days. This high-interest rate could result in the eventual liquidation of the debt.

So far, Michael Egorov has tried to stabilize his positions and the utilization rate twice, repaying a total of 4 million FRAX on July 31st. However, the utilization rate remained at 100%, as users swiftly remove liquidity as soon as he makes the payment.

To address this, the Curve founder deployed a new Curve pool on Tuesday, August 1. This pool consists of stablecoin crvUSD and Fraxlend’s CRV/FRAX LP token, seeded with 100,000 CRV rewards. 

This is to incentivize liquidity toward the lending market, decrease the utilization rates, and ultimately reduce the liquidation risks.

According to Delphi Digital, this pool attracted $2 million in liquidity and lowered the utilization rate to 89% four hours after launch.