Author: DeFi Made Here, Crypto Analyst; Translation: Golden Finance xiaozou

On June 12, 2023, Gauntlett initiated a proposal in the Aave governance community, suggesting freezing the CRV tokens in the loan positions of the wallet address of Curve Finance founder Michael Egorov. Gauntlet said it checked the risk status of the wallet in question, which relied heavily on CRV tokens as collateral. The account is said to be related to Michael Egorov, the founder of Curve Finance. According to on-chain data, the account used 288 million CRV tokens (about 180 million US dollars) as collateral to borrow about 63 million US dollars in USDT. It should be noted that 288 million CRV tokens account for more than 30% of its total circulation. In order to prevent the decline in liquidity of these tokens on the exchange and the generation of bad debts, it is recommended to freeze them.

I support Gauntlet’s proposal to freeze CRV on Aave v2.

The CRV market is dangerous for Aave and makes no sense at all. 289 million of Aave’s 306 million CRV tokens are stored by the founder of Curve Finance, who has lent out $63 million in stablecoins. Want to know why?

There are many benefits to borrowing against your own tokens, which conveys the following message:

•CRV price will not decrease.

• “The founders didn’t dump.”

•Lower slippage compared to dumping on the open market.

•If prices go up, you can borrow more money.

Last November, Avi (note: the crypto trader is Avraham Eisenberg, who is known as Avi on crypto Twitter) intended to manipulate the market to liquidate Michael Egorov (founder of Curve), but the result did not go as expected. Since then, CRV borrowing has stopped.

As a result, Michael Egorov is almost the only lender of CRV on Aave, and he is taking the stablecoin from the shared lending pool.

Michael Egorov also pledged CRV to borrow stablecoins on the Frax Finance lending market, MIM Spell, and Inverse Finance (approximately $44 million in stablecoins have been borrowed).

But Aave can’t just set LTV to 0 to force repayment. Here’s why:

The problem is that no one can close his 412 million CRV position (about $268 million). Selling just 10 million CRV on-chain would result in a slippage of more than 21%.

And it’s hard to believe that Michael Egorov himself would repay the loan if faced with a real threat of liquidation. Who would voluntarily give up USD for worthless tokens?

So if you suddenly change the LTV, you'll just end up with bad debts. There will be no liquidators, and the happy owner of a new Australian mansion (note: Curve founder Michael Egorov just spent a huge amount of money to buy an Australian mansion) will not sell the mansion in exchange for CRV.

What is the best approach for Aave and other lending markets? It is:

• Further CRV mortgage lending is prohibited.

• Gradually start reducing the LTV of the CRV market (for example, by 1% per week).

In this case, Michael Egorov may repay part of his debt to a lower liquidation level, bringing risk to these lending markets. At least he will not be able to increase his CRV leverage of about $110 million, and CRV's on-chain liquidity is only $24 million. I know that this will cause dissatisfaction and criticism from some people, but you have to understand that this leveraged position is enough to destroy Curve.

Why do I say that if the price of CRV drops, it may ruin Curve? Because it is a farming token and its TVL is closely related to the price of CRV.