Welcome to CryptoGod-1's blog on all things crypto. Today I will be looking at the recent vulnerability which was exposed in Curve Finance, and the knock on effect it not only had on the price of CRV, but how the founders holdings of CRV could lead to further misery for investors.
Curve Pools Hacked
Popular decentralized finance (DeFi) protocol Curve Finance suffered from a vulnerability over the weekend which saw funds drained from a number of the protocol’s liquidity pools. On Sunday the 30th of July 2023 it was announced by the Curve team via a tweet that “a number” of its pools that use version 0.2.15 of the Vyper programming language have been exploited due to “a malfunctioning reentrancy lock.” The exploit has rocked the crypto and DeFi space, with $70 million reported as taken.
On Monday the 31st of July 2023 another tweet was issued listing all pools that have been hacked so far, with a further $100 million remains at risk in the mentioned Curve pools, representing a significant risk for the entire protocol’s reputation. With the decentralized exchange (DEX) for stablecoins using an automated market maker (AMM) model to manage liquidity, it has often been seen as a popular choice and one of the most solid projects in crypto. The hack will raise questions around the safety of the protocol, and others in the crypto and DeFi space.
While the damage is staggering, there has been some positive light in terms of white hackers. These ethical hackers were quick to notice the venerable state of the pools, and made use of the opportunity to hack it for themselves. However, they did not do it for greed or personal gain. One such white hack managed to take 2,879 ETH, worth around $5.4 million, from the exploiter and managed to safely return it to the protocol. While there is still plenty of funds missing, every bit of good news helps to maintain faith in the space.
Founder In Too Deep
The value of CRV took a sharp crash following the hack, with the price plummeting. The token was down 12% for the past 24 hours on Monday the 31st of July 2023, and at the time of writing this on Tuesday the 1st of August the price had dropped from $0.73 to $0.51.
Speculation is rife that the issues are far from over yet. As shown in the tweet below, there are rumours surfacing that the founder of Curve, Michael Egorov, is known to have borrowed $100m or more in stablecoins backed against his holdings of CRV (worth $168 million at the time). This equates to roughly 34% of CRV’s total market cap at the time, and the CRV is at potential of a forced liquidation. If the worst happens and his positions do indeed become liquidated, which are on multiple DeFi protocols, then there would be a sharp and sudden influx of CRV on the market. This in turn is likely to have far reaching consequences for the token, and DeFi at large, as the protocols would be looking to sell to recoup their loss.
According to DeFiLama, the price would need to hit $0.37 for a forced liquidation from its current price (at time of writing) of $0.51. Given the impact CRV has on the wider DeFi space, with it seen as a systemically important asset used as a trading pair in multiple trading pools across DeFi, and on platforms such as Sushi and Uniswap, then a knock-on effect could happen to DeFi.
Egorov has been working on it, with the founder selling his LDO (governance token for Lido) in return for USDC. This has been done in batches of between $10,000 and $50,000. Whether he will be able to ensure his position does not get liquidated remains to be seen, but the far reaching questions this poses for the DeFi space have to be considered.
He managed to secure a $63 million loan in USDT on Aave, $17 million of FRAX on Fraxlend, and $18 million from Abracadabra. While Egorov has made several transactions to repay some of the capital he borrowed on Fraxlend, there is still fear and doubt within the market at large. Many are questioning why a single user should be allowed to borrow against so much of a single blue chip token such as CRV, and in turn put the market at risk.
Have a great day.
CryptoGod-1.
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