Amid growing uncertainty among decentralized finance (DeFi) protocols around exposure to Curve, Aave Chan founder Marc Zeller has proposed the Aave treasury buy $2 million worth of Curve DAO Token (CRV) from Curve founder Michael Egorov with USDT (USDT).
The proposal says the acquisition would “send a strong signal of DeFi supporting DeFi, while allowing the Aave DAO to strategically position itself in the Curve wars” and helping the liquidity of Aave’s decentralized multicollateral stablecoin, GHO.
At current prices, 2 million USDT would net 5 million CRV, with Zeller suggesting the newly bought tokens could be locked up as veCRV for four years. The tokens could then be used for voting rights on the Curve platform, where users could provide liquidity for GHO pairs.
“The treasury balance and the predicted lower costs for service providers for the 2023-2024 budget would allow this strategic acquisition while maintaining a conservative stance with DAO treasury holdings,” the proposal notes.
The proposal garnered mixed reactions from the Aave community, with some claiming that the DeFi protocol should look for ways to reduce its exposure to the risk of CRV liquidation. According to one community member:
“This is a joke and goes against the best interest of both Aave stakeholders and Aave lenders, just to help a user who took too much leverage. How is this decentralized finance?”
A few others lauded the proposal, claiming it would help the protocol derisk the current CRV overleverage and help GHO grow.
Separately, Huobi co-founder Jun Du purchased 10 million CRV for $4 million from Egorov.
Egorov has total outstanding loans of over $100 million from various lending protocols, including a $70 million loan in USDT on Aave v2, using CRV as collateral. Aave’s risk parameters state that the CRV will be at risk of liquidation if its price falls to around $0.32.
CRV is currently trading at $0.59, meaning a price decline of around 60% would lead to liquidation. If that happens, the borrower’s deeded collateral will be liquidated to pay back the borrowed asset. This means that the CRV will be sold for USDT, resulting in bad debt.
Egorov has been on a CRV selling spree to manage his multimillion-dollar loan positions. Ever since the Curve protocol was exploited, he has sold millions of dollars worth of CRV tokens through over-the-counter trades.
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