Aave Proposes CRV Liquidation

In response to the systemic liquidation risk posed by Curved founder Michael Egorov’s prominent borrowing position on the lending protocol, Aave token holders have begun voting on two governance proposals today.

Authored by the on-chain risk management platform Chaos Labs, the two proposals seek to turn off the borrowing of CRV, the native governance token for stablecoin exchange Curve, on Ethereum and Polygon V3, and reduce the CRV liquidation threshold.

Aave’s governance ballots, which conclude on August 12th, are direct responses to the averted liquidation threat posed by Egorov’s lending positions on Aave, in which he deposited 34% of CRV’s total market capitalization to borrow more than $63 million.

Due to the recent Curve exploit, which caused the price of CRV to plummet, Egorov’s assets were under duress to be liquidated.

Even though Egorov’s financial situation has improved since he raised over $42 million by selling CRV in several OTC deals to pay off portions of his debt, the potential liquidation prompted Aave tokenholders to begin voting on whether to turn off CRV borrowing and reduce the liquidation threshold for CRV.

Omer Goldberg, the chief executive officer of Chaos Labs, stated in the governance vote that the motivation behind one of the proposals is “to disable the ability to short CRV via the Aave protocol,” which would prevent crypto users from borrowing CRV to sell it, thereby further affecting its price.

AAVE is currently trading at $67.78, while CRV costs 61 cents.

By press time, Goldberg had not responded to a request for comment.