- After the Curve Finance platform was compromised, significant DeFi tokens such as COMP, CVX, and AAVE have plummeted nearly 20% within two days.
- The substantial concern lies in the potential domino effect of this incident, as further declines of the CRV token could trigger liquidation of loan positions, exacerbating the losses.
In the often volatile landscape of decentralized finance (DeFi), the recent exploit on Curve Finance, a leading DeFi platform, has caused a significant ripple effect, leading to a sharp decline in several major DeFi tokens.
The native cryptocurrency of Curve, CRV, suffered a 25% depreciation in value within a mere three-day span, triggered by an exploit on the platform. The platform’s founder, Michael Egorov, had previously used CRV as collateral to borrow over $100 million across various crypto lending initiatives.
The Fear of a Domino Effect
The primary concern that emerges from this situation is the potential of further CRV drops to trigger forced liquidations of loan positions, which could inflict further losses. As Stefan von Haenisch, Head of Sales Trading at OSL SG Pte in Singapore, expressed to Bloomberg, further drops could cause a “domino effect” across the DeFi sector, leading to significant market destabilization.
Curve Finance, which holds the position of being the second-largest decentralized exchange after Uniswap, saw a sharp decline in the amount of crypto utilizing its service. As per data from DeFiLlama, this figure plummeted to $1.9 billion from an earlier standing of $3.6 billion.
Despite this blow, Egorov remains confident that the DeFi industry will weather this storm. He assured that he is working towards minimizing, if not completely eradicating, the impact of this incident, indicating plans to reduce his loans.
The effects of the Curve incident have extended beyond its confines, leading to substantial declines in mainstream DeFi tokens. COMP, CVX, FXS, and AAVE have all experienced a significant drop in value in the last 24 hours.
According to DeFiLlama, a sizeable portion of the collateral is in danger of liquidation should the CRV token fall to 37.5 US cents. Over the past three days, Aave’s native token has seen a 14% drop, reflecting the significant role Curve Finance plays as a liquidity provider, especially for stablecoins.
The shockwaves of the Curve Finance incident have not spared the broader crypto market. Bitcoin’s price has slipped under $29,000, with trading volumes witnessing a slight lull. The top ten altcoins have also experienced a 2-5% correction over the last two days, highlighting the far-reaching implications of this incident.