Crypto Lenders Weigh Options To Deal With CRV Leverage

Curve founder Michael Egorov has millions in crypto loans across various DeFi lending protocols, mostly collateralized with CRV tokens.

Curve’s recent high-profile exploit caused CRV to rapidly drop over 20%. The token has since stabilized over the last few days of trading after prominent crypto investors converged to support the project.

Transaction records show Egorov shuffling assets to maintain various positions across crypto lending platforms including Aave, Abracadabra and Fraxlend.

Since a further precipitous drop in the token has the potential to put Egorov's large CRV-backed loans at risk of liquidation, lending protocols are considering ways to reduce the outsized risks posed by these positions.

Aave Mulls Options

Of lending protocols exposed to CRV-related risk, Aave stands out with $49M borrowed against $151M in CRV.

Chaos Labs recommended a measured approach to de-risking CRV with loan-to-value (LTV) reductions in line with a strategy proposed in June, the most recent execution of which was thwarted in the chaos caused by the CRV exploit. The group recommended that CRV borrowing be disabled on the Ethereum and Polygon Aave V3 deployments to reduce price impacts from short positions and excess borrowing against CRV.

Notably, Chaos Labs questioned the efficacy of a proposal by Gauntlet to set TVL to 0 on CRV-related positions to impede borrowing “given that it can be circumvented in V2.”

Chaos Labs objected to Gauntlet's proposed freeze of CRV, stating, “we do not view a freeze of the CRV market as a productive measure given the current circumstances.”
Marc Zeller, Aave's integrations lead, has floated another proposal that would use funds from the Aave DAO treasury to acquire CRV tokens in an effort “to support the DeFi ecosystem and position Aave DAO strategically in the Curve wars, benefiting GHO secondary liquidity.”

High Interest on FraxLend

Egorov's outstanding loan of $9.2M on FraxLend, backed by just over $22.6M worth of CRV, may be of particular concern as interest rates on the protocol automatically increase enormously as liquidity dries up.

Egorov was able to stimulate liquidity on FraxLend and forestall a large rise in rates using a novel approach - Curve’s latest crvUSD/fFRAX pool, which offers 100,000 CRV in incentives.

Abracadabra Eyes CRV Liquidity

A vote is now active on Snapshot to determine whether the Abracadabra lending platform will apply collateral-based interest to CRV cauldrons on the protocol. All proceeds will be directed to its treasury to mitigate DAO risk related to CRV liquidity conditions.

The proposal takes into account repayments made on MIM loans backed by CRV and the expressed desire by both the Convex and Curve communities to “execute a coordinated effort in bringing more CRV liquidity on-chain.”

So far, voters have overwhelmingly supported AIP 13.6, with nearly 100% of votes cast in favor.