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Amid growing uncertainty among decentralized finance (DeFi) protocols regarding exposure to Curve, Aave Chan founder Marc Zeller has proposed that the Aave treasury purchase $2 million worth of Curve DAO Token (CRV) from Curve founder Michael Egorov using USDT.
The proposal states that the acquisition would “send a strong signal of DeFi supporting DeFi, while allowing the Aave DAO to strategically position itself in the Curve wars” and aid the liquidity of Aave’s decentralized multicollateral stablecoin, GHO.
At current prices, $2 million in USDT would acquire 5 million CRV. Zeller suggested that the newly acquired tokens could be locked as veCRV for four years. These tokens could then be utilized for voting rights on the Curve platform, where users could provide liquidity for GHO pairs.
“The treasury balance and the predicted lower costs for service providers for the 2023-2024 budget would allow this strategic acquisition while maintaining a conservative stance with DAO treasury holdings,” the proposal noted.
The proposal received mixed reactions from the Aave community. Some argued that the DeFi protocol should seek ways to reduce its exposure to the risk of CRV liquidation. According to one community member:
“This is a joke and goes against the best interest of both Aave stakeholders and Aave lenders, just to help a user who took too much leverage. How is this decentralized finance?”
Others praised the proposal, claiming it would help the protocol derisk the current CRV overleverage and support the growth of GHO.
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Separately, Huobi co-founder Jun Du purchased 10 million CRV for $4 million from Egorov.
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Egorov holds total outstanding loans exceeding $100 million from various lending protocols, including a $70 million loan in USDT on Aave v2, using CRV as collateral. Aave’s risk parameters indicate that CRV faces liquidation risk if its price drops to approximately $0.32.
CRV is currently trading at $0.59, meaning a price decline of roughly 60% would trigger liquidation. In such an event, the borrower’s pledged collateral would be liquidated to repay the borrowed asset. This process involves selling the CRV for USDT, potentially resulting in bad debt.
Egorov has been actively selling CRV to manage his multimillion-dollar loan positions. Since the Curve protocol was exploited, he has sold millions of dollars worth of CRV tokens through over-the-counter trades.
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