In an intriguing shift, Michael Egorov is making strides to mitigate a potential debt crisis that has had a bearish impact on CRV tokens. Recognized as the creator of the acclaimed Curve, Egorov introduced a new liquidity pool, crvUSD/fFRAX, on the decentralized exchange designed to buy time to repay a highly-discussed and potentially market-threatening curve token (CRV)-backed loan from Fraxlend, an issuer of stablecoins.
This newfound pool, flourishing from 100,000 in CRV rewards, is dedicated to a liquidity pool from which Egorov had earlier taken 15.8 million FRAX stablecoin by placing 59 million CRV as collateral. The crypto market has been enthralled with worry over the prospect of liquidation of the FRAX loan and a massive 63.2 million tether (USDT) loan borrowed from Aave’s leading marketplace; all this stems from an unfortunate exploit at Curve that saw the value of CRV diminish.
Under the Fraxlend guidelines, interest rates (APY) on borrowed volumes could double every 12 hours if the pool’s utilization rate maintains a steady 100%. This rate essentially defines the ratio of borrowed assets vis-à-vis the total liquidity in the pool. Unless more liquidity is drawn into the pool to decrease the utilisation rate, as noted by crypto research firm Delphi Digital, the interest charges become potentially unsustainable.
Egorov launched the new liquidity pool to attract more liquidity and dampen the utilization rate, a move lauded by pseudonymous DeFi researcher Ignas. However, as FRAX is rapidly withdrawn from the pool, fearing the repercussions if CRV is liquidated, the APY has considerably risen. A new wave of FRAX being deposited into the CRV/FRAX pool is eagerly awaited to prevent the APY drastic surge.
As Ignas noted, the new pool is acting as a magnet to draw capital into the crucial FRAX/CRV lending pool on Fraxlend, scaling down the borrowing APY and providing Egorov more leeway to repay the loan. The new pool has been seen as an attempt to shift liquidity toward the lending market to reduce utilization rates, keeping Erogov’s debt from spiraling to unpromising levels, according to Delphi Digital.
Owing to the new pool, since its establishment late Monday, over $5 million has flown into liquidity, with a subsequent reduction in the utilization rate in Fraxlend’s FRAX/CRV pool to an acceptable 54.78% down from 100% on Monday. Moving forward, it is hoped that this bold strategy calms the turbulent waters currently facing Curvature and reestablishes its position in the market.
Source: Coindesk
