Gauntlet proposes Aave freeze on Curve founder’s collateral worth 290 million CRV

The Gauntlet team proposed to the Aave lending DeFi platform community to freeze CRV collateral on Curve DAO (CRV) tokens on Aave V2.

The project specialises in risk-management services for DeFi platforms. Gauntlet’s analysts flagged a loan of about $67.7 million in stablecoins collateralised by CRV. Analytical services mark this wallet as linked to Curve Finance Michael Egorov.

On June 10, the address deposited on Aave V2 additional 38 million tokens. The collateral value reached 290 million CRV (~$185 million) or about 34% of the asset’s circulating supply.

Gauntlet acknowledged that the loan’s “health factor” is 1.66, which is not alarming — automatic liquidation occurs at a value of 1. However, experts noted that over the past months the overall liquidity of Curve has fallen by 50%.

They recommended Aave:

• freeze CRV collateral on Aave V2;
• set the LTV for CRV collateral to zero to prevent further growth of deposits in it.

“The account has continuously added collateral as the CRV price declined and increased borrowings in stablecoins over the past couple of months. Given that the account is actively managed and remains operational, freezing CRV will incentivise the user to reduce the loan or add other forms of collateral,” said Gauntlet experts.

They clarified that the proposal covers all CRV-collateralised borrowings on Aave V2 and is aimed at encouraging their migration to version V3 with more suitable risk parameters.

To clarify, Gauntlet does NOT support restricting any specific address.

We propose freezing $CRV on @AaveAave V2 to encourage migration to V3, where risk parameters are better suited for this market.

A freeze on V2 restricts user actions as shown below:https://t.co/JzVk5XUnsq https://t.co/91ijY4Ij8V pic.twitter.com/SaeHeXLAgc

— Gauntlet (@gauntletnetwork) June 14, 2023

Lookonchain analysts noted that Egorov’s wallet has recently been active on other lending DeFi services such as Abracadabra, Fraxlend and Inverse Finance. The address’s total deposits in CRV across these platforms reached 142 million tokens (~$81 million).

Deposited 288.4M $CRV($166M) and borrowed 63.44M $USDT on #Aave;

Deposited 79.4M $CRV($45.65M) and borrowed 20.5M $MIM on #Abracadabra;

Deposited 46.65M $CRV($26.82M) and borrowed 12.86M $FRAX on #Fraxlend;

Deposited 16M $CRV($9.27M) and borrowed 4.68M $DOLA on #Inverse. pic.twitter.com/AwF6RXZXXM

— Lookonchain (@lookonchain) June 15, 2023

One of the Aave users noted that the greatest risk to the protocol lies in Egorov’s borrowings outside Aave. Another commenter speculated that the Curve founder does not intend to repay the loans, thereby locking in profits. He called the strategy “not such a bad idea,” but spoke in favour of Gauntlet’s proposal.

“This is definitely an extreme case from the perspective of the product’s intended use, but I think it’s a fair proposal given what’s happening. I mean, he [Egorov] bought a $60 million mansion, right?”, wrote a community member.

In a comment to The Block, Egorov noted that a possible zero LTV would prevent any increase in loan and collateral; additional collateral would have to be provided via Aave V3.

“Still, with this position on Aave it’s wiser to be cautious. Even if the proposal is rejected, I’d rather act as if it had been implemented”, he admitted.

Over the last 24 hours CRV price fell by more than 12%. In 30 days, token quotes have fallen by 31%. The asset trades around $0.57 (CoinGecko).

The Aave team launched the third version of the protocol in March 2022.