Author: Asher Zhang
Recently, Curve founder Michael Egorov has liquidated about 100 million CRV in lending positions. So, what has the leading DeFi company Curve experienced recently? In addition to the "old wounds" that have not healed, what is the real dilemma of leading DeFi companies such as Curve? Curve founder Michael Egorov seems to have escaped danger again, but is the crisis really over?
CRV triggers liquidation crisis, Michael Egorov may survive
On June 8, as Bitcoin fell, CRV began to fall sharply; after Bitcoin fluctuated for two days, on June 11, Bitcoin fell sharply again, and CRV formed a bearish engulfing pattern on the daily chart, with strong shorts. Affected by the macro market, on June 12, Bitcoin and other currencies began to rebound, and most mainstream currencies rose, but CRV was unable to rebound, and shorts continued to suppress. On June 13, Bitcoin fell again, mainstream currencies fell sharply, and CRV ushered in a major collapse, which in turn triggered Michael Egorov's huge CRV token liquidation.
On June 13, according to data detection: Curve founder Michael Egorov's loan position has been liquidated about 100 million CRV, worth about 27 million US dollars. The remaining position is 39.35 million CRV on the main address, with a loan of 5.4 million US dollars. The current health rate is above 1 and will not be liquidated for the time being. Subsequently, according to Bitpush, on June 13, NextGen Venture co-founder Christian posted on the X platform that he received 30 million CRV from the founder of Curve.
With the support of Christian, co-founder of NextGen Venture, Michael Egorov may be able to get through the crisis. On June 13, Michael Egorov, founder of Curve, posted on X: "The Curve Finance team and I have been working hard to solve the liquidation risk problem today. Many people know that all my loans have been liquidated. My position size is too large for the market to bear, resulting in $10 million in bad debts. Only the CRV pool on the Curve lending platform (lend.curve.fi) was affected. I have repaid 93% and plan to repay the remaining bad debts soon, which will help users avoid losses due to this situation."
Did Michael Egorov suffer any losses in this liquidation? Ethereum core developer eric.eth posted on the X platform that the founder of Curve did not suffer any "loss" from the liquidation of CRV. He earned $100 million from a CRV position worth $140 million, and selling it on the market would result in the same price (fall) and cause dissatisfaction in the community. eric.eth's remarks seem to make sense at first, but in fact they are not. Michael Egorov's liquidation was essentially passive, which was mainly related to the sudden change in the crypto market. If Michael Egorov wants to sell tokens, he can completely connect with institutions and sell tokens by liquidation. Even if the income does not change much, the huge liquidation will have a very big harm to the Curve ecosystem.
Why CRV has been falling all the way, a review of the Curve crisis
As a DEX platform mainly based on stablecoins, Curve's unique advantage is that crvUSD can form trading pairs with various collaterals, forming a rich use scenario for exchanging assets. CRV's large-scale swap business has always dominated the industry, and the team has been updating projects and launching new features, which is deeply trusted by the market. When Curve was first launched, the CRV token reached a high of US$63. In the last bull market, the CRV token remained around US$6 for a long time, and during the bear market, the value of the CRV token remained at around US$1. However, during this round of bull market, CRV not only did not start the bull market journey, but fell all the way, and the most important turning point was July 2023.
In late July 2023, due to a reentrancy vulnerability caused by the Vyper programming language, four Curve Finance mining pools were hacked, with a total loss of approximately $70 million. This also directly led to a huge liquidation risk for the founder of Curve. However, since this was a malicious attack by hackers, many forces in the crypto market have expressed their support for Curve. In addition to Egorov selling more than 106 million CRV tokens to 19 institutions and investors to raise funds, crypto celebrities such as Justin Sun, Du Jun, and Maji Brother also purchased CRV. Justin Sun bought 5 million CRV tokens, Du Jun bought 10 million CRV for a total of $4 million, and Maji Brother bought 3.75 million CRV tokens for $1.5 million, and all of them were pledged and locked for 6 months.
On February 1, the CRV sold by Michael Egorov at 30% below the market price began to unlock. On February 1, 2024, Huang Licheng transferred the 3.75 million CRV (about 1.75 million US dollars) he had previously purchased to Binance, with an expected return of +16%; on the same day, the address of OpenSea user named "erwwer" (starting with 0xb0b) transferred 2.5 million CRV (1.14 million US dollars) bought from Curve founder Michael Egorov OTC to Binance; Subsequently, Cream Finance and others also sold. On February 24, the second whale who bought CRV from Curve founder Michael Egorov OTC (7 million U bought 17.5 million CRV) transferred 5 million CRV (about 3 million US dollars) to Binance, becoming the fourth OTC buyer to transfer/sell CRV. Of the 17.5 million CRV he bought through OTC, 5 million were transferred to Binance, and the other 12.5 million were locked in Curve through two addresses. Subsequently, many institutions and big Vs sold their CRV.
DeFi Summer is over, the economic dilemma of old DeFi
The continuous decline of CRV is directly related to the hacker attack on Curve, but from a broader perspective, it is actually closely related to the overall downturn in the DeFi track. If it were the DeFi Summer period in 2022, if CRV was relatively strong, these losses would not be irreparable. So, what are the reasons for the current development dilemma of the DeFi track?
The DeFi track has changed from a blue ocean to a red ocean, and the appeal of DeFi leaders has begun to decline. From the perspective of the development of the DeFi track itself, at the beginning of the birth of Uniswap, Curve, and Compound, the market was obviously competitive; the biggest feature of the Web is open source and decentralization, which led to the subsequent emergence of various types of DeFi. Although the leader of DeFi still dominates, However, it still faces significant competition, which has quickly transformed the entire track from a single leader into a fiercely competitive Red Sea battlefield.
The leading DeFi tokens have entered the release period, and the market selling pressure has continued to increase, which has put pressure on the price of leading DeFi tokens. The figure below is a graph of CRV token release. From the figure, we can see that CRV unlocked fewer tokens in the early stage of the last bull market, but over time, the supply of CRV tokens has continued to decrease, which is also one of the main reasons for the pressure on the price of CRV. At the same time, the value capture ability of mainstream DeFi leading tokens is still relatively lacking.
DeFi development has reached a bottleneck period, and the US law enforcement agencies do not recognize DeFi. Earlier, Gurbir Grewal, director of the enforcement department of the US Securities and Exchange Commission (SEC), said: "We don't care about labels. We care about products, and labels are not important to us. Technology is important. DeFi provides services that are neither decentralized nor financial, but pure "fraud". We will expand our jurisdiction to the extent permitted by law." This year, the US SEC defined UNI as a security, which also made the market somewhat pessimistic about its development prospects. Since DeFi has not been recognized by US regulators, this has essentially restricted DeFi's path to the traditional financial market, which has also limited the market size of DeFi.
The market is focusing on new tracks such as MEME, and the attention of funds has obviously decreased. In this round of bull market, some new tracks have emerged, such as modular blockchain, Depin, Bitcoin Layer 2, etc.; but the most unique one is the MEME track. From the inscriptions, runes, ERC404 in 2023, and Bonk and BOME on Solana, etc. Whenever Bitcoin takes a break, the market rotation does not appear, but the MEME craze appears alternately, which makes the DeFi leader have no chance to catch up.
Summarize
The decline in CRV tokens is directly related to the hacker attack on Curve. Although Curve founder Michael Egorov temporarily eased the liquidation pressure of CRV with the help of institutions last year, this selling pressure did not disappear after the unlocking period, and the selling pressure from institutions and big Vs has been suppressing the rise of CRV.
From a more fundamental perspective, the DeFi track has entered a red ocean competition stage, which makes it difficult for DeFi leaders to develop; the leading DeFi tokens have entered the unlocking period, and the tokens are under constant selling pressure, making it difficult to rise; the regulatory authorities do not recognize it, making the DeFi track still niche; in addition, the unusualness of this round of bull market has prevented the leading DeFi from receiving financial attention. Overall, the problems faced by DeFi leaders such as CRV may be difficult to solve in this round of bull market, so the darkest moment of CRV may not have arrived yet. However, in the long run, if Curve can survive, as the leading DeFi of DeFi infrastructure, the future is still full of opportunities.