Yesterday (June 13), the native token $CRV of Curve Finance, a well-known lending platform protocol, suddenly plummeted, and the price collapsed in a short period of time, catching many investors off guard.
Prior to the market crash, $CRV was trading at $0.35. Within a few hours, the price of $CRV quickly fell, hitting an all-time low of $0.2220, a drop of more than 40%.
As of writing, the trading price has recovered to $0.284, slightly mitigating the losses from the one-day plunge, but the weekly decline is still around 38%.
Reasons behind the plunge
Over the past month, the price of $CRV has continued to fall, from around $0.5 in early June to $0.35 before yesterday’s plunge. The decline in $CRV has put Curve founder Michael Egorov’s lending positions at risk of liquidation.
CRV is the native token of Curve Finance, a decentralized finance (DeFi) protocol, and is mainly used for stablecoin transactions. The founder of Curve is Michael Egorov, who has considerable influence in the DeFi field and is an out-and-out lunatic. He used the large number of CRV tokens he held to conduct high-leverage loans on multiple DeFi protocols. A large amount of liquidity was obtained through these loans. Part of these funds were used to purchase a luxury house in Melbourne for $41 million, setting a record for the highest single property transaction in Victoria that year.
Today’s flash crash is the consequence of this debt and market behavior. Due to the fluctuation of CRV token prices, the highly leveraged loans that Egorov had previously established were at risk of liquidation this morning. According to reports, he borrowed about $95.7 million in loans in five accounts on five different protocols, collateralized by about $141 million in CRV tokens. With the sharp drop in CRV prices, the liquidation risk of these loans began to react violently like a butterfly effect.
Previously, Egorov had turned to several cryptocurrency giants to raise funds and protect his position. Sun Yuchen previously purchased 5 million CRV from Egorov at a price of $0.4 per unit. A series of other private purchases allowed Egorov to raise $15.8 million in over-the-counter (OTC) transactions for 39.2 million CRV.
[What is loan liquidation] Mr. Wang pawned his Rolex worth $100 to a pawnshop (lending platform), and the pawnshop (lending platform) gave Mr. Wang $50. The two parties signed a contract that if the Rolex fell to $80, the pawnshop (lending platform) would directly sell Mr. Wang's Rolex for $80, and Mr. Wang would not have to return the $50.
What should Curve founders do?
So far, Michael Egorov has repaid several bad debts on Inverse and Llamalend through $FRAX, $DOLA and $CRV tokens. Curve contributor Saint Rat revealed that these bad debts can be resolved if the price of $CRV can return to $0.33.
In order to deal with this crisis, Michael Egorov proposed in the DAO to destroy 10% of the total supply of CRV, and announced that active users will receive a three-month deposit reward increase on all Curve platforms, hoping to stabilize the token price.
Michael Egorov said: "The Curve Finance team and I have been working hard to resolve the liquidation risk issue that occurred today. Many of you know that I have liquidated all loans. Because the position size is too large, the market cannot handle it, resulting in 10 million bad debts. Only the CRV market on lend.curve.fi (with the largest position volume) was affected. I have paid off 93% and plan to pay off the rest soon."
This morning Michael Egorov also released a statement saying that he is more committed than ever to building Curve.
This incident is not the first time Michael Egorov has faced a major liquidation. In 2023, multiple lending pools on Curve were exploited, causing a sudden crash in the price of $CRV, with over $100 million at risk of liquidation.
At that time, DeFi giants such as Justin Sun, the founder of Tron, intervened, first providing liquidity and preventing bad debts, and then purchasing millions of $CRV at a discount, successfully preventing the risk of damage to the entire ecosystem.
This time, as Michael Egorov proposed to destroy tokens and launch a deposit reward plan, whether the price of $CRV can rebound and resolve this liquidation crisis will become the focus of market attention.
CRV was liquidated again. What negative impact will it have on the market? Can we take advantage of the situation to buy at the bottom?
The limit on the size of altcoins’ debt positions has become a common topic in the DeFi industry. One of the concrete manifestations of the bull-bear transition is the reduction in altcoin liquidity, which has also made the altcoin pool, which was once a major source of money, a source of risk today. After this incident, I believe that major lending protocols will pay more attention to this.
It can be seen that the market of CRV has been very weak throughout this bull market, and now it has even fallen below the bottom of the bear market, which means that the dog dealer has been desperately selling but still can’t sell all the coins. If the founder directly sells a large number of coins, there will be risks both in terms of law and public opinion on the project, so the way to realize it is
1. Sell to big investors off-market (there are related news at the beginning of the bull market, you can search, these people are probably also desperately selling coins in this bull market)
2. Pledge and wait for liquidation to convert the currency into u
Why is CRV liquidated now instead of in a bear market? My personal opinion is that the lending rate in the bull market is too high and it is unbearable. Now the interest rate is close to 120%. According to this interest rate, the CRV project party has to pay more than 5,000 WU a year. In addition, the market is a bit tailing, so it is better to liquidate.
Of course, you don’t have to think that CRV will easily spiral back to zero just because it has fallen and been liquidated. Curve is definitely a good project that can make long-term profits. It is one of the infrastructure DeFi on the Ethereum chain. It started out as a stable currency exchange, which can reduce a lot of slippage losses. If you are interested in the specific mechanism, you can search it here. I won’t go into details. It is not a Ponzi flash in the pan. Even if it falls for a long time, it is a long process. It is basically impossible to quickly fall to zero in a chain collapse like Luna. So it is understandable that every time there is a decline, there are big investors who buy at the bottom and fight for a rebound.
However, the question is: if the project is profitable, is it easy to make money by buying the token? The rebound is the rebound. Like uni, the token has long passed the initial value discovery period and hype period, and there is not much market mismatch cognitive gap or long-term investment value. It is difficult to make money from the tokens of "old value projects". Ordinary retail investors can just take a look, and there is little point in participating. We should still focus on where there is capital speculation.
From the weekly chart, the trend is not good. Even without today's event, CRV has been breaking new lows. In the callback in April, other currencies did not break new lows, but CRV did. This shows that the trend of CRV itself is very weak. Today's event only exacerbated the market. The strength of the trend can be seen in advance from the market. Without today's liquidation event, I believe many people would not pay attention to this coin.
From the short-term trend, when the price drops to 0.2 USD, many people are buying the bottom. The main force will not miss such a good opportunity and collect enough chips. So many people have the idea of buying the bottom, so it is difficult to rise in a short time. Too many people take advantage of the fire, and it is difficult for the market to rise unless these people are washed out. At this time, don't take chances and rush in.
Potential altcoins worth paying attention to at present:
Let me share an interesting phenomenon. Every time CRV hits bottom, it is the bottom area of the copycat market. Every time this thing falls below this level, the copycats start to rise collectively. I wonder if this will be the case this time?
The recent decline in copycat stocks is quite large. Judging from the overall data, the MEME sector is relatively strong. You can arrange PEPE and people for short-term operations.
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