In July 2023, a hack on Curve Finance, a decentralized exchange on Ethereum, led to a significant drop in the price of CRV tokens and raised concerns about the potential for systemic risk in the DeFi space. The hack exploited vulnerabilities in certain pools built using the Vyper programming language.
Following the hack, the price of CRV plummeted by 20.91%, reaching a two-month low of $0.58. Fears of liquidation risks intensified when it was revealed that the founder of Curve Finance, Micheal Egorov, had taken hefty loans worth $100 million against CRV as collateral. This caused further decline in the CRV price, dropping to a seven-month low of $0.48.
To mitigate the risks and support the recovery of CRV, Egorov initiated partial repayment of his loans. He sold 39.25 million CRV tokens to notable DeFi investors, generating $15.8 million in stablecoins. Additionally, he partially paid off his Tether USDT loans, reducing the principal from $63.20 million to $54.1 million. These repayment efforts aim to reduce the liquidation risk associated with the loans.
Despite these positive developments, the potential for a contagion-level event still remains. The derivatives market indicated negative bets on CRV, suggesting short positions being actively taken. However, this contrarian bet could result in a short squeeze if the price of CRV rallies, forcing short holders to buy the token.
Currently trading near multi-year lows at around $0.50, if buyers can establish support at this level, the CRV price may rally in the short to medium term towards horizontal resistance levels at $0.78 and $1.23.
Nevertheless, risks persist as the hackers still hold 7.1 million CRV tokens, valued at $4.5 million. If they convert their holdings into more liquid tokens or stablecoins such as BTC or ETH, it could put downward pressure on the price of CRV.
While Egorov’s repayment efforts have reduced the liquidation risk to some extent, it has not been completely eliminated. Investors should exercise caution and conduct their own research before making any investment decisions. This article provides general information and does not constitute investment advice.