Delphi Digital Sounds Alarm over Curve Finance Founder’s Risky Exposure to Frax Finance; Potential CRV Liquidation Looms Large
In a recent Twitter update, Delphi Digital, a reputable crypto investment research institution, has issued a warning about Curve Finance founder Michael Egorov’s substantial exposure to Frax Finance, a situation that has caught the attention of the crypto community.
According to the report, Egorov currently holds an astonishing 59 million CRV collaterals and 15.8 million FRAX debt positions on the platform, surpassing his holdings on Aave. Despite the seemingly manageable size of the position, the complex dynamics of Fraxlend’s time-weighted variable rate pose significant risks to the CRV ecosystem.
Delphi Digital’s analysis reveals that, at the current 100% utilization rate, the interest rate on Fraxlend doubles every 12 hours, reaching an alarming 81.2% at the time of the report. What’s even more concerning is that this rate is projected to skyrocket to an eye-watering 10,000% annual percentage yield (APY) within a mere 3.5 days. Such an astronomically high interest rate could eventually lead to the liquidation of Egorov’s position, regardless of CRV price fluctuations.
In the worst-case scenario, with a maximum loan-to-value (LTV) ratio of 75%, the position’s liquidation price could plummet to 0.517 CRV/FRAX within 4.5 days, representing less than a 10% drop from the current price. Despite Egorov’s efforts to reduce debt and utilization rate, including repaying 4 million FRAX in the last 24 hours, the market’s utilization rate remains stubbornly at 100%. Immediate liquidity withdrawal by users upon repayment is a key factor contributing to this situation.
The gravity of Egorov’s substantial position raises serious concerns about its potential impact on CRV prices, given the limited liquidity in the ecosystem. An 8-figure liquidation of his holdings could trigger a significant depreciation of CRV’s value, potentially causing ripple effects throughout the DeFi ecosystem.
In an attempt to mitigate risks, Michael Egorov has taken action by deploying a new Curve pool and gauge on the same day, aiming to incentivize liquidity towards the lending market. The pool includes crvUSD and Fraxlend’s CRV/FRAX LP token, and it received a seeding of 100,000 CRV rewards. This pool, directly tied to Egorov’s borrowing on Fraxlend, poses the most significant risk to his potential liquidation. Within just four hours of its launch, the pool attracted $2 million in liquidity, leading to a reduction of the utilization rate to 89%.
Despite these efforts, the crypto community remains vigilant about the potential ramifications of such a high-stakes situation. The health of Curve Finance hangs in the balance as the market eagerly awaits further developments in this unfolding financial saga.
Adding to the concerns, Curve Finance also reported that, in addition to several Ethereum pools, an Arbitrum-based liquidity pool may have experienced a “possible compromise” over the weekend. Preliminary assessments indicate that over $24 million may have been used on the site, and blockchain security company PeckShield has increased the estimated stolen amount to $52 million, as the theft occurred in real-time.
As the situation unfolds, market participants closely monitor these events, fully aware of the potential implications for the broader cryptocurrency landscape.
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