The DeFi sector has recently faced a downturn, with the total value locked (TVL) in DeFi protocols witnessing an 8% decrease in the last three days, plummeting from $43.81 billion to $40.31 billion, as reported by DeFiLlama.
The decline was triggered by a malicious attack on several Curve pools on July 31, leading to a chain reaction of asset withdrawals across different protocols, totaling over $3 billion.
Notably, Curve Finance and Convex Finance suffered the most significant losses, each experiencing a drop of more than $1 billion in TVL during this period. Both protocols were once dominant in the DeFi market, boasting a combined TVL of over $40 billion and attracting a vast user base.
The adverse effects, however, extended beyond Curve and Convex, as other platforms like UniSwap and Aave also witnessed losses. While some platforms have started recovering slightly from the fall within the last 24 hours, the situation remains uncertain.
The decline in TVL can be attributed to lenders pulling their liquidity from DeFi platforms amidst the growing industry uncertainty. In response to the risks of contagion, Auxo DAO promptly removed its positions on Curve and Convex.
Moreover, concerns have arisen regarding Michael Egorov, the founder of Curve Finance, who has substantial loans backed by 427.5 million CRV (47% of the total $CRV supply). This has raised fears of potential bad debt in case $CRV's price drops below a certain threshold, potentially triggering knock-on effects across the DeFi ecosystem.
As a result of these worries, platforms like Aave have experienced significant withdrawals, leading to higher borrowing fees and interest rates, which exacerbates the liquidation risk for users with outstanding loans.
To address the situation and prevent liquidation, Egorov has sold $CRV to investors and institutions through over-the-counter (OTC) deals to repay the debt. Despite these efforts, the DeFi market continues to grapple with the aftermath of the recent attack and its associated consequences…
