Curve Founder Egorov Selling CRV Tokens to Repay Debt, Will CRV Fall Further?

Starting from July 30th, CRV has been declining due to the impact of the attack incident, dropping from a high of $0.73 to $0.48. The $0.4-$0.5 range has been a strong support level for CRV since 2022, with three unsuccessful attempts by bears to break below it. 

However, given the negative news, will this time see a break below that level, and what would it imply if it does?

CRV price chart from July 2022 to August 2023, Source: TradingView.

Curve Founder Egorov Selling CRV Tokens to Repay Debt

As the price of CRV continues to decline, Curve Finance founder Egorov is facing the risk of liquidation for his 292 million CRV tokens (approximately 30% of total circulation), with the liquidation price around $0.3-$0.4. Under this pressure, Egorov has been forced to sell CRV tokens in exchange for stablecoins to repay his debts and increase the collateral ratio (loan health rate).

According to on-chain data at the time of writing, Egorov has sold 3.75 million CRV tokens through OTC transactions to Huang Licheng, a Taiwanese-American singer and founder of multiple blockchain projects. Additionally, he exchanged 5 million CRV tokens for 2 million USDT from Sun Yuchen, the founder of Tron (TRX) network.

So far, Egorov has sold a total of 54.5 million CRV tokens through various channels, raising approximately $20 million to repay loans across different platforms, resulting in an overall loan health rate of around 1.7. Specifically, AAVE's loan health rate is 1.67, Abracadabra shows loan health rates of 1.63 and 1.89, and Fraxlend has a loan health rate of 1.91.

Has the risk for Curve Finance been eliminated?

Looking at Egorov's repayment situation, the liquidation risk has decreased but not been completely eliminated, as there are still two potential issues that have not been resolved or even discovered.

Ironically, auditors and Vyper developers have yet to find any vulnerabilities. This means that Curve Finance and other decentralized finance (DeFi) projects using Vyper may potentially face similar attacks. As a result, many projects have announced their decision to stop using Vyper or temporarily suspend it, such as JPEG'd and Metronome.

Another overlooked aspect is that Egorov used CRV as collateral to borrow stablecoins and other cryptocurrencies. In theory, he could have used the stablecoins directly or sold those assets to repay the debt. However, he chose to sell CRV tokens instead. 

This raises suspicions that the assets borrowed against CRV may have suffered losses or that Egorov may have sold CRV tokens due to a lack of confidence. However, the former possibility seems more likely.

Will the price of CRV continue to decline?

Currently, the key factor for a halt in CRV's decline is the resolution of the vulnerability. As long as the problem remains unresolved, the security risks within Curve Finance's liquidity pool persist, and the impulse for users to sell CRV tokens cannot be eliminated, thus potentially triggering a secondary decline in CRV.

On a broader scale, if the vulnerability is not addressed, it would have significant implications for DeFi and even the entire crypto industry. In response, Sun Yuchen has extended a helping hand by proposing to introduce an stUSDT liquidity pool on the Curve protocol and urging everyone to "support and strengthen security measures to protect our decentralized ecosystem, as Curve is an essential DeFi infrastructure in the blockchain industry."

Additionally, users are yet to realize the issue regarding the destination of the assets borrowed against CRV by Egorov. If it's merely a matter of insolvency, the impact on the market may not be significant. However, if there are other issues that violate user consensus, it could lead to a situation similar to Litecoin's sharp decline caused by its founder Charlie Lee selling off his holdings.

If the $0.4 level is breached, not only would Egorov's positions be liquidated, but users' psychological defenses would also crumble. Positions that were previously unwilling to sell at low prices would follow suit in selling off, leading to a spiral-like cliff drop in the price of CRV and potentially causing a collapse. Of course, the best outcome would be to identify the vulnerability as soon as possible to effectively prevent the worsening of any hidden issues.

CRV price chart from July 2022 to August 2023, Source: TradingView.