Over 34% of circulating CRV tokens, or 291 million CRV, have been deposited into decentralized lending platform Aave. This move comes as Curve Finance founder Michael Egorov attempts to protect a $65 million stablecoin loan from the risk of liquidation. However, with the CRV token experiencing a 2.1% drop in value, some concern may arise over this strategy’s long-term effectiveness.
Egorov started borrowing stablecoins on Aave back in April, sending $37 million of Tether (USDT) to crypto exchange Bitfinex and $51 million of USDC to market maker Wintermute. Notably, the wallet associated with Egorov has contributed a total of $188 million in collateral on the platform, with an open $64.2 million USDT position, as revealed by Debank.
As it stands, the open position has a health rate of 1.68; if this number were to dip below 1.00, an automatic liquidation of the collateral would occur. Despite being over the 1.00 threshold, the ongoing fluctuations in the CRV token’s price give reason for concern. In the last 24 hours alone, the token’s value has fallen by 2.1% to $0.65 per token. Moreover, an abrupt 17% drop on Saturday morning further underscores the token’s volatility.
In the event of a continuing downward trend in the CRV token’s value, it is expected that both the collateral’s worth and the health rate would decline. This is particularly alarming when considering that CRV is trading at a staggering 90% lower than its 2022 all-time high of $6.50.
Another factor worth considering is how Aave responded to bad debt positions in the aftermath of the Mango Markets exploit. In January, the platform cleared out bad debt positions, equivalent to 2.7 million CRV. The future of Aave’s CRV collateral might be influenced by its previous actions in addressing debt-related issues.
To summarize, with the value of the CRV token experiencing significant drops and the potential for collateral and health rate declines, questions arise regarding Egorov’s strategy. However, as long as the health rate remains above the 1.00 mark, the risk of liquidation can still be managed. Observers should closely monitor the movement of the CRV token and the health rate to better understand the future stability of loans on Aave’s platform.
Source: Coindesk
