This article provides an in-depth analysis of the recent liquidation event of Michael Egorov, the founder of Curve, whose position worth approximately $141 million in CRV was liquidated. It examines Egorov’s gains and losses and speculates on the future direction of Curve Finance.
Curve Finance is a DeFi platform focused on stablecoin exchange. Its founder, Michael Egorov, has long used the governance token CRV as collateral and borrowed a large amount of stablecoins from multiple DeFi platforms. However, the volatile price of the CRV token has put Egorov’s borrowing position at risk of liquidation.
On the evening of June 13th, Arkham reported that Michael Egorov’s borrowing position, worth nearly nine figures ($141 million in CRV), had been completely liquidated. This resulted in bad debts of over $1 million on Curve’s lending platform, Llamalend.
Specifically, Egorov used a large amount of CRV tokens (approximately $141 million) as collateral and borrowed stablecoins, mainly crvUSD, from multiple platforms such as LlamaLend, Inverse, Uwu Lend, and Fraxlend. The annual interest rates on these platforms reached as high as 120%.
Since the controversy erupted, the price of CRV has plummeted by nearly 25% in a short period, from $0.35 to $0.21, triggering the liquidation mechanisms of multiple platforms.
This is not the first time Michael Egorov has been liquidated. In November 2022, there was a major short selling attempt to short CRV, which was known as the first DeFi defense battle. To counter this short selling behavior, Michael Egorov employed some emptying strategies to stabilize the CRV price. Through these strategies, the CRV price not only did not drop but also rebounded, and Egorov achieved a partial victory against the short sellers.
The second time was in August last year when Michael Egorov collateralized a total of 292 million CRV tokens, worth $181 million, on platforms such as Aave, FRAXlend, Abracadabr, and Inverse. He borrowed $110 million, and the average liquidation price was around $0.4.
In the previous liquidation, Michael Egorov actively replenished his position and sold 159.4 million CRV to 33 investors or institutions through OTC transactions, exchanging for 63.76 million stablecoins to repay the loans and save his position. In the second round of the DeFi defense battle, Egorov also received support from many well-known investors and institutions, including Justin Sun, Wu Jihan, and Du Jun. They bought a large amount of CRV through OTC transactions to help stabilize the market.
However, in this year’s liquidation event, although Curve founder Michael Egorov responded on social media that the Curve team and himself had been working hard to resolve the liquidation risk, it is widely known that all his loan positions have been liquidated.
In this dilemma, in the third round of the DeFi defense battle, Michael Egorov remained indifferent and essentially did not replenish or save his position.
Why could Michael Egorov remain so calm? Because he “profited” from it. Regarding the liquidation of his CRV position, Ethereum core developer eric.eth stated that the Curve founder did not suffer any “loss” due to the liquidation of CRV. He made $100 million in profits from his $141 million CRV position.
Michael Egorov’s profit mechanism is similar to traditional stock loan operations. By using Curve DAO token (CRV) as collateral, he borrowed a large amount of loans from multiple DeFi platforms. The only difference is that the collateral here is cryptocurrency instead of stocks.
Traditional stock lending usually refers to individuals or institutions pledging their held stocks to financial institutions to obtain loans. This operation can help holders obtain liquidity without selling stocks and continue to enjoy the potential appreciation of the stocks.
Although Egorov did not directly sell his CRV tokens, by using them as collateral for loans, he effectively converted a portion of the token’s value into usable liquidity. This operation can be seen as a variant of stock equity cash-out because he obtained cash flow by pledging tokens instead of selling them directly.
Of course, based on Michael Egorov’s calmness over the past few days, it is basically certain that he has given up on Curve and wants to make a final profit before letting go. Compared to being acquired at a discounted price, collateralizing CRV is indeed more profitable for him.
On the other hand, investors are facing a disaster due to the price drop and subsequent liquidations on other lending platforms. Fraxlend’s borrowers suffered millions of dollars in liquidation. According to Lookonchain, users were liquidated for 10.58 million CRV ($3.3 million) on Fraxlend.
Early CRV investors and other investors in its ecosystem also faced significant losses. According to DeFiLlama data, as of June 18th, Curve’s total value locked (TVL) had dropped to $1.9 billion, less than one-tenth of the peak of $23 billion in 2022, and its ranking in the DeFi market has dropped to beyond 15th place.
Of course, there are also those who supported and profited from this liquidation event. For example, Christian, co-founder of the crypto fund NDV and an NFT whale, stated that he received 30 million CRV from Michael Egorov to support the future of Curve and DeFi. It is reported that Christian bought CRV over-the-counter for about $6 million, with a unit price of $0.2 per CRV token. At the current price of $0.28, he has a paper profit of about 40%.
Regardless of the future development of this matter, based on the current attitude of founder Michael Egorov, Curve has reached a dead end. This DeFi top player, which once rivaled Uniswap, has been disrupted by its own founder, which is regrettable. From the perspective of these DeFi defense battles, the development of the DeFi track currently has many shortcomings, and it is hoped that project parties will learn from them.