Curve Attack Causes Steep Decline in CRV Price, Will it Trigger a Cryptocurrency Market Crash?

Last week (7/24-7/30), the cryptocurrency market overall experienced a downturn, with total market capitalization and market sentiment index continuing to decline.

The total market capitalization followed the previous trend and plunged from $1.2 trillion to $1.17 trillion, a 3% decrease. Currently, there has been a slight rebound in total market capitalization, reaching $1.8 trillion.

The market sentiment index hit a new low for July, dropping to a minimum of 51, approaching the neutral value of 50. There are currently no signs of improved market sentiment, gradually entering a subdued state, and the probability of falling below the neutral level in the near future is high.

Cryptocurrency Market Capitalization (yellow) and Fear Greed Index (blue) trend from 2023.1.1 to 2023.7.30; Source: MacroMicro.

Mainstream coins showed relative resilience last week, with equal parts of oscillation and upward movement. Uniswap (UNI) performed the best, rising by 11%, followed by Stellar (XLM) with a 7% increase. On the other hand, Polkadot (DOT) and Chainlink (LINK) performed the worst, although their declines did not exceed 1%.

Bitcoin (BTC) and Ethereum (ETH) prices remained relatively unchanged, oscillating within a narrow range with increases of less than 1%. Their respective market dominance also saw little change, at 48.2% and 19.1%.

Performance of mainstream coins from 7/24 to 7/30; Source: MacroMicro.

On July 31st, Curve Finance tweeted that their stablecoin pools (alETH/msETH/pETH) using the Ethereum programming language Vyper 0.2.15 had been attacked, while other pools remained secure. The team is currently evaluating the impact and will provide timely updates on the situation.

Official announcement by Curve Finance, Source: X.

Due to the attack, Curve Finance's Total Value Locked (TVL) was significantly affected, plummeting from $3.3 billion on July 30th to $1.7 billion, representing a loss of $1.6 billion and a 48% decline within 24 hours.

Curve Finance TVL change and ranking, Source: DefiLlama.

Meanwhile, major exchanges such as Binance, OKEx, and Bithumb displayed risk warnings on their trading pages, cautioning users about the high volatility of the CRV token and advising them to trade carefully and be aware of the risks. Some exchanges even temporarily suspended CRV deposits and withdrawals, such as Upbit.

Risk warning messages regarding CRV, Source: OKEx.

In response to the negative news, the price of CRV experienced a sharp decline, dropping from a low of $0.73 to $0.58, a decrease of over 20%. At the time of writing, CRV has rebounded slightly and is priced at $0.65. While most of the market is bearish on CRV, there are also individuals who see it as a buying opportunity. Wu Jihan, co-founder of Bitmain, and current chairman of Bitdeer, expressed on social media that he has bought CRV at its lowest point.

CRV price chart over 4 hours, Source: TradingView.

Although the Curve Finance incident was caused by an attack, the fundamental issue lies in the presence of bugs in the Vyper programming language used for writing smart contracts, leading to project vulnerabilities. This means that projects using Vyper are exposed to higher risks.

Regarding the direct economic losses caused by this attack, monitoring data from PeckShield, a top global blockchain security company, shows that it has resulted in $52 million in losses so far, involving multiple decentralized finance (DeFi) projects, including Alchemix (DeFi lending), JPEGd (NFT lending), Metronome DAO (synthetic assets), deBridge (cross-chain), EIIipsis (DEX), and others.

Furthermore, there is a possibility of CRV liquidations. According to data, Curve founder Egorov has collateralized over 292 million CRV tokens on platforms such as AAVE, Fraxlend, Abracadabr, Inverse, with a liquidation price of $0.4. What does this mean exactly?

If investors further sell off CRV, causing it to drop to $0.4, Egorov's 292 million CRV tokens (which account for 33% of the circulating supply) would be forcefully sold by the platforms due to insufficient collateralization. This would inevitably trigger another devastating crash.

In addition to CRV itself, attention should be given to other projects using Vyper, especially the Vyper 0.2.15 version, as they may also have similar issues that have yet to be discovered. If these issues occur on a large scale, this incident could become a bearish tool influencing the entire cryptocurrency market, seizing the opportunity to drive a market pullback.

On July 24th, BTC fell below $30,000, hitting a low of $28,863, marking a new low for July. Since then, Bitcoin has been oscillating in a narrow range, with daily fluctuations of around 1%, which has lasted for a week.

Bitcoin price trend from July 2022 to July 2023, Source: TradingView.

Although Bitcoin did not experience a decline due to the CRV incident, its price trend is not optimistic. The rebound highs have been consistently lower, while the pullback lows continue to set new records, indicating a downward channel.

Moving forward, without significant positive catalysts, Bitcoin will be controlled by bearish sentiment, transitioning from a previous tug-of-war scenario to accelerated selling pressure. Therefore, it is expected that BTC will experience an accelerated pullback in the second half of the year, potentially testing the $25,000 level.

BTC/USD daily chart, Source: TradingView.