Someone Paid 600% Interest on $50M To Borrow CRV, Then Watched It Get Liquidated

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Exchange liq­uid­i­ty pro­to­col Curve has launched its first native sta­ble­coin — crvUSD.

The news coin­cid­ed with a trad­er bor­row­ing most of the avail­able Curve DAO token (CRV) on Aave, over $50 mil­lion worth. The spike in the price of CRV over the past 8 hours put that posi­tion very close to — and even­tu­al­ly over — its liq­ui­da­tion point.

The trad­er is pre­sumed to be Avra­ham Eisen­berg, pre­vi­ous­ly linked to the con­tro­ver­sial exploit of Man­go Mar­kets on the Solana net­work, based on Dis­cord dis­cus­sions relat­ed to the trade.

Eisen­berg did not imme­di­ate­ly return a request to com­ment via Twitter.

The trad­er, or trad­ing group, had about $58 mil­lion in USDC sup­port­ing a $50 mil­lion loan of CRV as of 12:20 pm ET on Tuesday.

Trader’s posi­tion on Aave’s V3 Ethereum mar­ket as of 12:20 pm ET

By 1:10 pm ET, all of that posi­tion was liq­ui­dat­ed, leav­ing the Aave pro­to­col with 2.64 mil­lion CRV — or about $1.7 mil­lion — in bad debt.

It’s not clear what the trade strat­e­gy was, but the Aave posi­tion was so large it could not be ful­ly liq­ui­dat­ed using the avail­able col­lat­er­al. That’s because the avail­abil­i­ty of spot CRV was lim­it­ed enough that the val­ue of CRV jumped to a high of around $0.71 as the posi­tion was unwound, data col­lect­ed by Block­works shows.

The Curve Finance stablecoin

Michael Egorov, Curve’s founder, pre­vi­ous­ly said the sta­ble­coin will main­tain its peg to the US dol­lar through overcollateralization.

Its lat­est white paper reveals that the stablecoin’s design will be exe­cut­ed through the Lend­ing-Liq­ui­dat­ing Auto­mat­ed Mar­ket Mak­er Algo­rithm (LLAMMA) which con­verts between col­lat­er­al and the sta­ble­coin. So, if the price of a col­lat­er­al (ETH) dips, the auto­mat­ed mar­ket mak­er will con­vert deposits to a sta­ble­coin (USD).

LLAMMA will auto­mat­i­cal­ly cal­cu­late bands to locate where the col­lat­er­al sits, and if the price of the col­lat­er­al changes, it will be con­vert­ed to the stablecoin. 

The crvUSD will main­tain its peg to USD through a peg-keep­ing reserve that is formed by an asym­met­ric deposit (when the out­come of the deposit has more prof­it than loss or risk tak­en to achieve the prof­it) into a sta­bleswap pool made up of the sta­ble­to­ken and a redeemable ref­er­ence coin or an LP token.

The tim­ing of the launch is inter­est­ing — it appears to have caused a sharp rise in the price of CRV, putting the col­lat­er­al for the trader’s loan in danger.

The own­er of the wal­let bor­row­ing CRV trans­ferred the tokens to OKX, a Sey­chelles-based cryp­tocur­ren­cy exchange and deriv­a­tives exchange, but the sub­se­quent use of those tokens is not known.

Eisenberg’s Twit­ter account post­ed that he was “tak­ing the day off to spend time with fam­i­ly” but that appears to have been meant iron­i­cal­ly, as his next tweet indi­cat­ed he was very much mon­i­tor­ing the situation.

Egorov main­tains a large posi­tion on Aave using CRV as col­lat­er­al, which some have spec­u­lat­ed could have been the tar­get of the trade — if the CRV was sold, cre­at­ing a short posi­tion, which is unknown.

How­ev­er, it could also be the case that a more com­plex strat­e­gy involved pur­pose­ful­ly allow­ing the CRV loan to be liq­ui­dat­ed, which forced Aave liq­uida­tors to buy back CRV using the trader’s USDC collateral.

The price of Aave ini­tial­ly dropped as bad debt began to accrue in the pro­to­col, although it recov­ered ful­ly once liq­ui­da­tion was com­plete and trades at about $55 as of 1:40 pm ET — flat over 24 hrs, data com­piled by Block­works shows.

Aave’s team expects to eas­i­ly cov­er the short fall with its trea­sury holdings.

This sto­ry was updat­ed on Nov. 22, 2022 at 1:00 pm, 1:20 pm, 1:35 pm, 1:45 pm and 1:55 pm ET.

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