Gauntlet asks Aave to freeze Curve’s 290M CRV pledge

The Gauntlet team has proposed to the community of the DeFi landing platform Aave to freeze the lending collateral in Curve DAO (CRV) tokens in the second version of the protocol.

The project specializes in risk management services on decentralized finance platforms. The attention of Gauntlet specialists was attracted by a loan in the amount of ~$67.7 million in stablecoins secured by CRV. Analytical services mark this user’s wallet as linked to Curve Finance founder Michael Egorov.

On June 10, the address deposited an additional 38 million tokens on Aave V2. Collateral volume reached 290 mln CRV (~$185 mln) or about 34% of the asset’s market supply.

Gauntlet admitted that the “health factor” of the loan is 1.66, which does not inspire fear – automatic liquidation of the position occurs at a value of 1. However, experts noted that in recent months, the overall liquidity of the Curve token has decreased by 50%.

They recommended Aave:

• freeze collateral in CRV in the second version of the protocol;
• set to null LTV for collateral in the token in order to prevent further growth of deposits in it.

“The account has consistently added collateral as the price of CRV has declined and has increased borrowing in stablecoins over the last couple of months. Given that the account is actively managed and maintained, the CRV freeze will incentivize the user to reduce credit or add other types of collateral,” Gauntlet said.

They clarified that the proposal applies to all CRV secured borrowings on Aave V2 and aims to encourage their migration to the V3 version of the protocol with more appropriate risk parameters.

To clarify, Gauntlet does NOT support restricting any specific address.

We propose freezing $CRV on @AaveAave V2 to encourage migration to V3, where risk parameters are better suited for this market.

A freeze on V2 restricts user actions as shown below:https://t.co/JzVk5XUnsq https://t.co/91ijY4Ij8V pic.twitter.com/SaeHeXLAgc

— Gauntlet (@gauntletnetwork) June 14, 2023

Lookonchain analysts noticed that Yegorov’s wallet has recently been active in other DeFi landing services like Abracadabra, Fraxlend and Inverse Finance. Cumulative CRV address deposits on these platforms reached 142M tokens (~$81M).

Deposited 288.4M $CRV($166M) and borrowed 63.44M $USDT on #Aave;

Deposited 79.4M $CRV($45.65M) and borrowed 20.5M $MIM on #Abracadabra;

Deposited 46.65M $CRV($26.82M) and borrowed 12.86M $FRAX on #fraxland;

Deposited 16M $CRV($9.27M) and borrowed 4.68M $DOLA on #inverse. pic.twitter.com/AwF6RXZXXM

— lookonchain (@lookonchain) June 15, 2023

One Aave user noted that Egorov’s borrowings outside of it pose the greatest risk to the protocol. Another commenter suggested that the founder of Curve does not intend to return loans and thus fixes profits. He called the strategy “not that bad” but spoke out in favor of Gauntlet’s proposal.

“This is definitely an edge case in terms of the intended use case of the product, but I think it’s a fair suggestion given what’s going on. I mean he [Егоров] recently bought a mansion for $60 million, right?” — wrote a member of the community.

In a commentary for The Block, Egorov noted that a possible change in LTV to zero would prevent any increase in credit and collateral, and Aave V3 would have to be used for additional collateral.

“It’s better to be careful with this position on Aave anyway. Even if the proposal is rejected, I’d better act as if it was executed, ”he admitted.

Over the past 24 hours, the price of CRV has fallen by more than 12%. For 30 days, the quotes of the token lost 31%. The asset is trading at around $0.57 (CoinGecko).

Recall that the Aave team launched the third version of the protocol in March 2022.

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