A tempest brews in the crypto market as curve’s native token, CRV, continues to tumble, spelling potential trouble for Michael Egorov, the founder of decentralized exchange Curve. A potential large-scale liquidation hints at volatility and a wider impact across the crypto realm. CRV hit a nadir of around 5 cents, a low unseen since November 22nd, owing largely to a reentrancy attack. Now, traders, wary of Egorov’s sizable borrowing positions against Aave and Frax, are hedging their bets with short positions.
The open interest in perpetual futures in relation to CRV has effectively doubled, reaching a staggering $106 million, according to data accessed through Velo. This change is suggestive of traders betting on a price decline and invariably indicates a bearish domineer in the market. Residual tremors from the attack have contributed to a decline of 30%, causing concerns amongst crypto researchers about the health and future of Curve.
Crypto analytics firm, Delphi Digital disclosed that Michael Egorov has borrowed a whopping 63.2 million tether (USDT) from decentralized lender Aave, collateralized by 305 million CRV. If CRV/USDT pair falls to $0.37, then we could witness a potential large-scale liquidation. Furthermore, Egorov has a 15.8 million loan, backed by 59 million CRV, from Fraxlend which adopts a Time-Weighted Variable Interest Rate. The peril here is Fraxlend’s Time-Weighted Variable Interest Rate that it employs, that modifies the interest rate based on the ratio of borrowed assets to collateral supplied.
The rate can go upwards or downwards over time. As it stands, the lending platform is pitching at 100% utilization which could double the interest rate every half a day. The current interest rate sits troublingly high at 81.20% with a probable surge to a maximum of nearly 10,000% APY after a period of 3.5 days.
Such a leap in the interest rate could result in liquidation which might induce further volatility in the crypto market. The potential selling of the collateral backing the loan, CRV, in an already weak market, obviously promises uncertainty.
However, it’s worth noting that this doesn’t spell the end of CRV. The constellation of bearish investors may set a scene for a short squeeze, especially if worries about Egorov’s loan start to wane. Under conditions of pronounced bearish activity, a minor price bump could trigger a rapid retreat of bearish investors, causing the prices to climb. Market volatility is an inherent component of the crypto sphere and we must tread with due diligence.
Source: Coindesk
