In the recent development of the stable cryptocurrency market, Lightning HSL proposed a groundbreaking idea aimed at preventing the imminent risk of liquidation of Curve’s native token CRV. After the recent exploitation of Curve Finance, CRV’s value has dropped sharply and faced large-scale liquidation, and the crypto world has gone crazy.
New backup pool solution
The Lightning HSL proposal revolves around the introduction of a backup liquidation pool for mainstream stablecoins. Take the commonly used stablecoin USDT as an example. According to the plan, any user who wants to obtain a discounted collateral product can deposit USDT into this backup pool. Users on the verge of liquidation can use the USDT in the backup pool to repay their debts, and then withdraw the collateral to sell it to the backup pool at a discount.
However, some are skeptical of the idea. Analysts believe that while this approach may be close to the stable pool proposed by Liquidity, it may not produce the desired results in actual situations. Concerns have been raised due to the significant difference in collateral assets between the two. Critics worry that customers who buy reduced CRV could quickly return the market to its previous crash, putting their positions at risk of liquidation.
These analysts believe that the lending platform's strategy is at the heart of the problem. The assets of the lending pool should be segregated, collateral should be classified according to its market liquidity, and appropriate lending limits should be set accordingly.
Crypto market makers took aggressive action after the exploit, intervening on Binance to support CRV. Data from Kaiko, a Paris-based cryptocurrency provider, reported that 2% bid-side market depth (a measure of buy orders within 2% of the mid-price) rose from around 500,000 CRV to over 1 million CRV after the exploit.
Following the attack late Sunday, CRV quickly dropped more than 14% to 58 cents. The sudden drop in CRV triggered more selling as concerns grew that Curve founder Michael Egorov’s millions of dollars in USDT and FRAX borrowings secured by CRV could be liquidated. As of this writing, CRV tokens are trading at $0.5783.
It remains to be seen whether the Lightning HSL proposal will be implemented and how it will affect the cryptocurrency market. However, it has opened up a conversation about new mechanisms to mitigate the risks associated with cryptocurrency lending and liquidation.