Following the feat of decentralized exchange Curve, many DeFi participants are trying to make sense of the landscape – and figure out what to do next.
The curve has been hacked for more than $70 million last Sunday after the discovery of a bug in its coding language, Vyper.
Concerns about the ripple effects of the Curve exploit were evident. The price of Curve’s native token, CRV, fell dramatically immediately after the exploit, from $0.73 to $0.50. CRV is trading at $0.60 at the time of writing.
Curve founder Michael Egorov’s loan, worth an estimated US$70 million, was one of the main concerns of many ecosystem participants. borrowed using CRV in warranty on Aave v2.
Learn more: Curve’s Egorov turns to notable counterparties to replenish his DeFi positions
As expected, the Curve exploit has reshaped the DeFi landscape, at least for now.
Nick Cannon, vice president of growth at Gauntlet, a crypto-financial risk management company, told Blockworks that one of the side effects of smart contract exploits is a drying up of market liquidity.
“After FTX, (liquidity) on DEXs and centralized exchanges completely evaporated, and when that happens, it’s no surprise that it changes the risk profile of not just CRV, but the entire market,” Cannon said.
Where is liquidity going?
Between July 30 and around 7 p.m. ET on Thursday, approximately $452.4 million was withdrawn from Aave v2 accounts, Cannon told Blockworks.
This figure includes:
- $90.7 million to an unspecified location
- $52.4 million staked in stUSDT
- $166.2 million held in wallets
- $128.8 million migrated to Aave v3
- $7.3 million transferred to the complex
- $7 million transferred to Binance
Cannon notes that an additional $26 million in withdrawals from Morpho, $32.7 million from Egorov, and $12.1 million from the Falm Income protocol were not included in these calculations.
To avoid liquidation, Egorov engaged in a series of over-the-counter (OTC) agreements with various ecosystem participants to repay its loans on the Aave, Fraxlend, Inverse, and Abracadabra lending protocols.
Lending protocols offer to buy CRV with USDT
Both Aave and Fraxlend have governance proposals in progress that suggest purchasing CRV with USDT.
Marc Zeller, founder of the delegate platform Aave Chan Initiative, note that this approach could allow Aave v2 to support the DeFi ecosystem and incentivize GHO liquidity.
“An acquisition of CRV worth 2 million USDT would send a strong signal of DeFi supporting DeFi, while allowing the Aave DAO to strategically position itself in the curve wars, thus benefiting the secondary liquidity of the GHO,” Zeller wrote.
A similar proposal was suggested by Samuel McCulloch on Fraxlend.
“To strengthen the health of our lending market and foster increased liquidity across all Frax assets, the DAO should take advantage of this opportunity to acquire CRV,” McCulloch wrote.
Cannon, however, notes that Gauntlet will continue to recommend that lending protocols deactivate, freeze, or similarly adjust their CRV and prevent additional collateral immediately.
“Does the DAO want to get stuck holding one of the largest positions in this collateral if CRV liquidity dries up?” » Cannon said.
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