CRV Liquidation Threat Causes DeFi Protocols to Take Action

• Curve founder Michael Egorov’s borrows of millions against his CRV holdings threaten to destabilize a wide swath of DeFi.
• Rather than wait for liquidation chaos, some protocols are taking active measures.
• The DAO that governs the lending platform Abracadabra has approved an emergency measure to change the way it tracks the prices of those tokens.
• Reserve Protocol is asking for help to establish “a more robust incident response strategy”.
• Nexus Mutual encourages its customers to “wait until more information is available”.

DeFi Protocols Take Action in Response to CRV Liquidation Threat

Decentralized finance (DeFi) protocols are taking action to protect themselves from the hack of Curve Finance and the threat of potentially catastrophic liquidations. Curve DEX founder Michael Egorov’s penchant for borrowing tens of millions of dollars in tokens against his CRV holdings has pinned a handful of on-chain lending markets up against the wall. If the price of CRV falls too low and they’re forced to try and liquidate his collateral at a time when buyers are slim, they could sell low and suffer crippling debts – creating a systemic risk for all of DeFi.

The DAO that governs lending platform Abracadabra, from which Egorov had once borrowed $18 million, has decided it’s better to hold CRV through a crisis than to sell into a liquidation cascade. Last night, it approved an emergency measure to change how it tracks those tokens’ prices “to prevent any inadvertent selling of CRV tokens” that would accumulate lousy debt.

Another area of focus for teams has been reinforcing the links that lock DeFi protocols together. Last night, a representative for the stablecoin-focused Reserve Protocol, which builds on top of DeFi majors including Lido, Compound, and Rocketpool, asked in their respective Discords for help to establish “a more robust incident response strategy” so that its developers can coordinate across teams during crises such as Curve.

Protecting Losses

For Nexus Mutual, an insurance-like service that offers users some protection against losses they suffer from hacks, the weekend assault on Curve will likely lead to a wave of new claims when it opens its portal on Wednesday. The protocol is encouraging its customers to “wait until more information is available” so that it can more accurately assess what they’re owed.

On Tuesday, after days of Egorov selling assets to pay back lenders, the mood across DeFi was hardly grim but perhaps still skittish. If the markets turned fast he could get liquidated and wreck a retinue of protocols – like it or not.