Aave token users are currently on the verge of making two critical governance decisions that could reshape the lending protocol’s future, particularly regarding the systemic liquidation risk created by the Curved founder, Michael Egorov’s substantial borrowing position.
According to Chaos Labs, an on-chain risk management platform, these proposals revolve around disabling borrowing of CRV – the primary governance token for stablecoin exchange Curve – on Ethereum and Polygon V3 networks. It also aims to reduce the liquidation threshold of CRV, a clear reaction to Egorov’s lending crisis on Aave. Notably, Egorov had deposited an eye-popping 34% of CRV’s total market cap to secure a loan exceeding $63 million.
Dramatically, a recent Curve exploit led to the sinking of CRV price, thrusting Egorov’s assets into a precariously close to liquidation scenario. Even though Egorov has stabilized by raising over $42 million via selling CRV in multiple OTC deals to settle part of his debt, the potential liquidation event drove Aave token-holders to vote on the discontinuation of CRV borrowing and the reduction of the liquidation threshold for CRV.
Additionally, the Chaos Labs CEO, Omer Goldberg, signified in the governance vote that one of the proposals’ underlying rationale is to thwart the shorting of CRV via the Aave protocol, which would otherwise allow crypto users to borrow CRV to dump, causing further depreciation of its price.
Many see this as a stark reminder of the daunting risks that lurk within the nuanced world of crypto-lending protocols. However, the community’s proactive involvement seems to be a reassuring sign of the industry’s strength and ability to self-regulate. Holding the line at just under $68, AAVE reflects its steady standing amid the turbulence. Meanwhile, CRV’s price teeters at the 61-cent mark, inviting speculation about its future trajectory.
A rather fascinating aspect to observe here is the merit and effectiveness of decentralised token holder voting in mitigating such systemic issues. One cannot ignore, though, that this decision-making can also catalyze unexpected adverse consequences. As Egorov and Aave token holders attempt to navigate through this tumultuous episode, the CryptoSphere will surely be watching with keen anticipation, serving as a lesson for future borrowers and protocol designers alike.
Source: Coindesk
