According to Bloomberg, in the cryptocurrency industry, it's typical for founders to accumulate substantial amounts of their project's native token as a stake in the business. This approach, while promoting transparency and offering a more liquid exit strategy, can sometimes lead to complications. For instance, when executives and venture-capital backers hold significant portions of a token, market liquidity can become scarce when they sell. This has led some to resort to unconventional methods to liquidate their holdings.
A recent incident involving Curve Finance founder Michael Egorov serves as a prime example. Egorov's trading of nearly $96 million in stablecoin loans was backed by approximately $140 million of his CRV holdings as collateral. This collateral was spread across several DeFi platforms, including Curve's own LlamaLend. However, when the price of CRV plummeted following the hack of a small DeFi lender this month, the value of Egorov's collateral also fell, forcing his positions into liquidation.
This forced selling resulted in millions of dollars in bad debt for Egorov and Curve, and triggered widespread market panic among CRV investors. The value of the coin briefly hit a record low following the liquidation. Egorov subsequently sold more CRV tokens in an over-the-counter deal to cover most of Curve's bad debt.
In a statement, Egorov confirmed that he personally repaid most of the bad debt and was committed to ensuring that all users could withdraw their deposits without any issues. This incident highlights the challenges faced by crypto founders and early backers when they attempt to realize the value of their holdings. The market's volatility and immaturity often mean that holdings are too dense for buyers to handle when sold in large quantities. This experimental nature of crypto markets allows for such situations, giving buyers, sellers, and builders the freedom to test the boundaries of finance without traditional rules.