Hello everyone ! I hope you have a good day so far, in today’s article I’m going to talk about the Curve finance hack and the impact on the market in the future.
Founded in 2020 by Michael Egorov, Curve finance is an Automated Market Maker (AMM) which is, in short, a platform where people can swap a certain token for another one (for exemple USDC for DAI). The liquidity (the coins and tokens) are provided by lenders and in return they gain a small pourcentage of all the transactions happening in the pool they had their tokens in.
Right now their are 38 Coins and tokens available on Curve including Wrapped Bitcoin (WBTC)and Ethereum (ETH)but also lesser-known tokens such as Convex Finance (CVX).
Also, it’s important to note that Curve is decentralized, it has his native token : Curve DAO
As the name suggest it is use to vote in the DAO where proposals to improve the ecosystem are made. Where the more tokens you have the more voting power you have.
On July 30th, the protocol was the subject of a hack that drained the liquidity pools, which notably contained wETH. The hackers exploited a vulnerability in the Vyper programming language :
Source : Twitter
It seems that the attacker managed to steal at least 42 million dollars even tho some says that it’s near the 100 millions mark.
There where attempt to reduce the magnitude of the disaster by the Vyper team and also some whitehat such as a person name “c0ffeebabe.eth”. He was able to use an Ethereum-arbitrage trading bot to front-run the malicious hackers and recover 5,4 million$ that the hackers were attempting to steal from Curve.
The market reaction
Immediately, the Curve DAO token plunged from $0.73 to $0.62. However, as new information arrived regarding the hack, it turned out that the hack was much more serious than initially thought (around a $43 million loss, whereas it was initially believed to be less), which led the token to plummet to $0.50 !
Source: Coingecko Black Swan ?
For those who are not familiar with the term “black swan event”, it refers to an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. One exemple in the crypto world is the crash of Terra in 2022.
This descrption fits perfectly with what could have happened if the price of CRV had decreased further, in fact the real danger for the world of DEFI and even for crypto in general lies in the loans that the founder of CRV accumulated.
Indeed, Michael Egorov holds a significant position on Aave v2. In practice, he had deposited nearly 305 million CRV tokens, which is almost 170 million dollars. These funds were then used to borrow 70 million dollars in USDT primarily, but also in USDC :
Source : debank
And it’s not even all of the positions of Michael Egorov, he also have :
- 50 million CRV deposited on Abracadabra to borrow 14 million MIM
- 38million CRV deposited on Fraxlend to borrow 9 million FRAX
- 25million CRV deposited on Inverse Finance to borrow 7 million DOLA
The problem we all of those CRV token is that if the price drop to much, all of the positions we’ve talked about will be at risk because the CRVs used to collateralize the borrow of stable coins will be sold in order to pay of the debt accumulated.
This will happen if the price drop below 0,34$ according to DefiLlama :
Source : DefiLlama Solution
So In light of this critical situation, Michael Egorov has undertaken several Over The Counter (OTC) trades.
In short, OTC are when 1 person calls other individuals and tries to sell them their tokens without selling them on an exchange. The major advantage of this maneuver is that the price of the token is not touch, it also allows to gain liquidity easily. However it comes with the downside of having to sell the tokens for a price below the market price.
So, at the time of writing the CEO of curve has sold over 72 millions CRV DAO tokens to various people including Justin Sun (5 millions CRV) for 0,40$ each, allowing Michael Egorov to recive 28,8 millions dollars which he used to repay a part of all of the loans he have.
The situation is really tense in the DEFI world, however the effort made the differents figures of the cryptospace seems to have reduce the fear of a large crypto collapse.
And you, what do you think of this hack ?
Thumbnail source : Source : cryptopolitan.com
As always thank you for reading !