- Gauntlet, a risk management firm, recommends Aave to pause all borrowing against Curve (CRV) tokens, amounting to $158 million, to prevent an ongoing crisis.
- Curve Finance’s recent exploit caused a drop in the CRV token’s price, generating bearish sentiment and raising concerns about the impact of large-scale liquidation on the broader DeFi ecosystem.
Gauntlet, a firm renowned for its expertise in risk management, has proposed a strategy to protect the DeFi sector from an escalating crisis. The proposal, submitted on Wednesday, encourages Aave, a prominent lending and borrowing platform, to halt all borrowing activities involving Curve (CRV) tokens. This recommendation aims to prevent the potential fallout from an ongoing crisis involving $158 million worth of CRV tokens.
A Crisis Looms Over DeFi
Gauntlet’s in-depth risk assessment identified a critical account with a sizable amount of USDT borrowed against CRV. As stated in the proposal, “Gauntlet has been investigating the risk profile of 0x7a16ff8270133f063aab6c9977183d9e72835428. This account borrows approximately $54m of USDT against $158m of CRV, as of 2023/08/01.” The firm suggests reducing the Loan to Value (LTV) of CRV to zero, effectively preventing further borrowing against existing CRV collateral.
LTV is a critical parameter in lending scenarios, denoting the proportion of a loan to the value of an offered collateral. Lower LTV ratios generally reflect higher initial payments, and an LTV of zero essentially means no loans can be issued.
This proposition comes in the wake of an unfortunate exploit suffered by Curve Finance, a significant player in stablecoin swapping, which caused the CRV token’s price to plummet. This unfortunate event jeopardized the $168 million stash of Michael Egorov, the founder, running the risk of liquidation.
The resulting bearish market sentiment towards CRV tokens has caused widespread concern. The fear of liquidated assets being dumped into an already dwindling market has exacerbated these worries. In particular, the liquidation of such a colossal position might exert undue pressure on other DeFi protocols. This is primarily because the CRV token serves as a trading pair and a stabilizer in numerous trading pools throughout the ecosystem.
Aave’s community members have until August 5 to cast their votes on Gauntlet’s proposal. The outcome of this decision could significantly influence the course of the unfolding crisis in the DeFi sector.