Reviewing the liquidation of Curve founder's $141 million CRV: Was it a premeditated sell-off for cashing out?

Author: Grapefruit, ChainCatcher

Editor: Marco, ChainCatcher

On the evening of June 13, Arkham announced that Curve founder Michael Egorov's nearly nine-figure loan position (worth $141 million in CRV) had been completely liquidated, resulting in over $1 million in bad debts on Curve's lending platform Llamalend.

In response to the liquidation incident, Curve founder Michael Egorov posted on social media that he and the Curve team had been working hard to address the liquidation risk issue. As is known to the public, all of his loan positions had been liquidated.

He also added that due to the large scale of his holdings and their significant impact on the market, it led to about $10 million in bad debts, but he has already repaid 93%, and the remaining bad debts will be settled soon.

Thus, this 12-hour liquidation incident seems to have been paused, with the price of CRV fluctuating around $0.28.

However, the reasons behind this large-scale liquidation of CRV loan positions are still worth investigating. Founder Michael Egorov's indifference during the liquidation, his calm behavior of "not replenishing, not rescuing," has surprised many, leading the community to question whether he is selling CRV to cash out through collateralized loans.

$141 Million CRV Liquidation May Have Been Anticipated

As early as two months ago, founder Michael Egorov was warned about potential liquidation risks for his CRV positions on lending platforms, but he did not take any action, neither replenishing nor repaying the borrowed stablecoin assets. Therefore, the liquidation of CRV did not come as a surprise, as it seemed to have been anticipated.

On the morning of June 13, data platform Arkham warned that Curve founder Michael Egorov had borrowed $9,570 in stablecoins (mainly crvUSD) against $141 million in CRV collateral across five lending platforms, facing the risk of liquidation as the CRV token price fell.

Arkham pointed out that if the price of CRV dropped by another 10%, these positions of Michael Egorov would likely start to be liquidated.

Subsequently, the CRV token plummeted from $0.35 to a low of $0.21, with an intraday drop exceeding 40%, setting a new historical low.

Michael Egorov's CRV loan positions on multiple lending platforms such as Inverse and UwU Lend all fell below the liquidation line, triggering the liquidation mode.

On the evening of June 13, Arkham announced that the $141 million (approximately nine figures) loan position on Michael Egorov's address had been completely liquidated.

In fact, as early as two months ago, Michael Egorov's CRV collateralized loan positions were warned to have entered a danger zone, facing the possibility of liquidation.

On April 14, on-chain data analyst Yu Jin posted on social media that as the market fell, the CRV price dropped to $0.42, and Michael Egorov's loan positions had again entered the red line danger zone.

Monitoring showed that Michael had used five addresses to collateralize a total of 371 million CRV across six lending platforms, borrowing $92.54 million in stablecoins, with a total of 12 debts. Among them, several positions' loan health ratios had already dropped to around 1.1. It was speculated that if the CRV price continued to drop by 10% without replenishing or repaying, liquidation would be triggered.

On that night, the CRV price briefly fell to $0.35, already below the 10% threshold of $0.42, but strangely, Michael Egorov's loan positions were not liquidated, and he seemed to have taken no remedial measures.

There are two viewpoints regarding why liquidation did not occur: one is that the oracle price lagged, possibly failing to track the liquidation price; the other is that the liquidation mechanism of the lending platform Silo is manual, not automatic, meaning that even if the price reaches the liquidation line, if there is no manual execution, liquidation does not actually happen.

Michael Egorov seemed to have narrowly escaped liquidation in April, with his positions not under threat.

However, facing his precarious positions, he did not take any countermeasures over the past two months. Therefore, as the overall decline in the cryptocurrency market affected the CRV price again, Michael Egorov's CRV loan positions being liquidated was also anticipated.

Michael Egorov Questioned for Selling CRV Through Loans

In the face of this large-scale liquidation of CRV positions, founder Michael Egorov's performance was even more surprising. He remained silent throughout the entire liquidation process, showing indifference, neither actively replenishing nor taking any remedial actions. On the morning of June 13, when the liquidation occurred, he was even joking with users in the Frax Finance community, stating that his mental state was very healthy.

During the CRV liquidation crisis last August, Michael Egorov actively replenished his positions to avoid liquidation caused by a drop in CRV prices, selling 159.4 million CRV to 33 investors or institutions through OTC transactions, exchanging for $63.76 million in stablecoins to repay loans and save his positions.

In contrast to his swift repayment of funds across various lending platforms last time and increasing the CRV collateral status, Michael Egorov's calm demeanor in the face of this $141 million CRV position liquidation was unusual. He neither sold CRV OTC to repay loans nor transferred back any of the previously borrowed stablecoins, appearing unusually calm.

Some users questioned whether this liquidation was a premeditated cash-out strategy by Michael Egorov. Liquidating a $141 million CRV position ultimately yielded about $100 million in stablecoins, and with the CRV price decline, the loss seemed to be less than 30%. If he had directly dumped $141 million CRV into the secondary market, given CRV's current liquidity, the loss could have been more than 30%, and he would have faced the blame for crashing the market.

Regarding this CRV position liquidation, Ethereum core developer eric.eth stated that the Curve founder did not suffer a "loss" due to the liquidation of CRV; he gained $100 million from a $141 million CRV position, and selling in the market would lead to similar prices and community dissatisfaction.

User @0x_Kun commented that selling $141 million worth of CRV in the secondary market would result in crazy slippage. Michael Egorov obtained stablecoins through collateralization, and although he lost about 30% of the collateral during liquidation, he ultimately secured $100 million.

He further explained that collateral liquidation is a win-win cash-out strategy for Michael Egorov. If the CRV price rises, he only needs to borrow more money; if the price falls, liquidation occurs, but he can keep all the borrowed money.

YouTube blogger @sassal.eth sarcastically commented, "You could have not bought a mansion," mocking Michael Egorov's liquidation behavior as no different from cashing out VC tokens to buy a mansion.

Aftermath of CRV Liquidation: Investors Suffer Losses

Regardless of whether this CRV liquidation was a premeditated sell-off or an unintentional act, the scale of over $100 million in liquidation has a significant impact on the cryptocurrency market, especially affecting investors related to Curve, and it has already impacted multiple lending platforms.

The sharp drop in CRV prices has also triggered liquidations on other lending platforms. According to Lookonchain data, a user was liquidated for 10.58 million CRV on Fraxlend, worth $3.3 million.

Additionally, all those who participated in last year's "Curve Defense War," including OGs, institutions, and VCs like DWF and Huang Licheng, who bought CRV tokens at $0.4 in OTC trades, are now facing losses as CRV has dropped to a historical low.

Of course, in the face of this liquidation storm, some have supported and profited. For instance, Christian, co-founder of the crypto fund NDV and an NFT whale, stated that he obtained 30 million CRV from Michael Egorov to support the future of Curve and DeFi. It is reported that Christian bought about $6 million worth of CRV OTC, at a price of $0.2 per CRV token, and with the current price of $0.28, he has an unrealized profit of about 40%.

Since last March, when the Curve founder was jointly attacked by VC institutions for monopolizing VC tokens and cashing out to buy a mansion, the Curve platform has faced one crisis after another, including a hacker attack in July of the same year and a warning of liquidation risk in April this year, culminating in the liquidation of $141 million in CRV positions.

Once a leading DeFi product on par with Uniswap, Curve has been on a downward trajectory. Some attribute this to the developmental difficulties in the DeFi space, but many believe that Michael Egorov has squandered a good hand of cards.

According to DeFiLlama data, on June 14, the TVL locked in the Curve platform has dropped to $2.27 billion, compared to the peak of $23 billion in 2022, the TVL has shrunk to less than one-tenth of its original size, and its ranking in the DeFi market has fallen outside the top 15.