Original author: Yilan, Invest&Research@LD Capital

Recently, the cashing out behavior of Curve founders and the continuous lending of stablecoins by pledging CRV have become the focus of market attention when market liquidity is affected by the SEC incident. In order to analyze the cost, possibility and related impact of shorting CRV on the chain, let’s first review the CRV long-short battle last year to see how shorting operations were carried out in the past.

Shortly after the FTX crash last year, when the market lacked confidence and liquidity shrank extremely, a whale borrowed a large number of CRV tokens from Aave and transferred them to the OKX exchange, borrowing a total of 47 million CRV. Affected by the whale's short selling, the price of CRV fell from US$0.545 to US$0.424, a drop of 21.88%, and reached a low of US$0.4. This operation was to repeatedly borrow and transfer tokens on the chain to suppress the price of the currency and conduct large-scale short selling.

Founder Michael then bought CRV to drive up the price of the coin. Although Aave accounts bear liquidation risk, shorts still have the potential to make profits. One way to make profits is to conduct high-leverage short trades on exchanges such as OKX, taking advantage of the lack of market liquidity and the lack of strong long interference to obtain high-probability profit opportunities. Another way to make profits is to convert short positions into long positions. When market liquidity is exhausted, short positions are closed and long positions are turned.

Aave cancelled CRV lending after the CRV long-short game incident (i.e., it is no longer possible to continuously increase leverage for short selling through the same on-chain revolving loan).

In addition, centralized exchanges also provide opportunities to borrow coins for short selling.

Currently, the chips of CRV tokens are distributed as follows: 116 million are held in Curve dex, 65.47 million are held in Binance, 12.56 million are held in OKX, and 53.29 million are held in other centralized exchanges.

It can be seen that centralized exchanges hold a large number of CRV tokens, accounting for 15% of the total circulation. However, due to the lack of centralized exchange data, it is impossible to calculate the cost of possible short selling.

At present, the total on-chain liquidable amount of CRV is $113 million, of which 99% (289 million CRV) is concentrated around the price of $0.375. This means that borrowing coins to short may be enough to push the price to near the liquidation price, but the founder of Curve has the ability to add margin to keep the liquidation price down, and the cost of shorting alone will be very high.

Aave Launches CRV and CRV Liquidation Levels

But in fact, no one can liquidate CRV of this size. Therefore, if Aave wants Michael to repay his loan, reducing the LTV of the CRV lending pool is the correct risk control measure, but it should not suddenly change the LTV to 0, which will greatly increase Aave's bad debt risk.

Although there are fewer ways to borrow CRV on the chain, the CRV spot selling pressure on the chain is relatively large, and the short selling behavior of centralized exchanges has increased significantly in the past 6 hours (190%+ APY on BN to short CRV), OI two hours Increase 500w, 24hr increase 1400w.

The founder of CRV has currently lent out more than $44 million in stablecoins from AAVE, Abracadabra, Fraxlend, Curve, and Inverse Finance. If liquidation occurs (see the previous thread for specific information on liquidation prices, etc.), these lending platforms will face potential bad debt risks.

But in fact, CRV of Aave's size will be liquidated in the event of significant slippage, so reducing the LTV of the CRV lending pool is the right risk control measure, but it should be reduced slowly and the LTV should not be suddenly changed to 0, which will greatly increase Aave's bad debt risk.

In the past day, founder Michael withdrew more than 700 wCRV (25%+) from Fraxlend and deposited it into Inverse Finance (fixed borrow rate 6.84%). The address 0x73f8af is created by Inverse Finance FiRM CRV market. The founder of Curve has pledged at least more than 600 wCRV in this address. Currently, there are more than 900 w TVL in the Inverse Finance CRV pool, most of which are pledged by the founder of CRV.

In addition, 4 million CRV is still pledged in Abracadabra, and nearly 80 million CRV is in Abracadabra CDP.

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