AAVE community to vote on proposal that could determine future of CRV and DeFi as we know it
- CRV token’s ongoing crisis could jeopardize the DeFi ecosystem as Curve is used as a trading pair and ballast across pools.
- Risk management firm Gauntlet proposes that AAVE pause CRV borrowing, while the CRV founder attempts to shore up liquidity for the token.
- CRV price falls dramatically from $0.742 on July 30 to Tuesday’s low of $0.485.
Curve Finance’s CRV token is currently suffering a liquidity crisis, from the exploit on July 30. The stablecoin-focused DEX relies on smart contracts to offer borrowing, trading and lending services to users.
Over $100 million in DeFi tokens is at risk, due to stablecoin pools, used for pricing and liquidity across the ecosystem. Hackers drained several stablecoin pools on the platform and the CRV token is now faced with a massive liquidity crisis.
Curve Finance founder, Michael Egorov, has been shoring up liquidity for CRV, but the entire DeFi ecosystem is at risk. A risk management firm, Gauntlet, recently stepped up to tackle the situation and proposed that AAVE halts borrowing against CRV as collateral. The community is set to vote until August 5 and come up with a solution to the problem plaguing DeFi.
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AAVE community debates on proposal to block CRV token borrowing
Gauntlet argues that the ongoing crisis in Curve stems from usage of the token as collateral and it can be prevented by pausing all borrowing activity. The firm proposed this on AAVE and voting on the proposal ends on August 5. At the time of writing, the community is debating whether the proposal helps AAVE protect against the spreading liquidity crisis.
PennBlockchain, an undergraduate and graduate/MBA organization for blockchain and crypto-curious students at the University of Pennsylvania, supports Gauntlet’s proposal of setting CRV Loan-to-Value (LTV) ratio to 0 to avoid further borrowing.
The community sided with users worried about the potential of bad debt to the AAVE protocol caused by CRV-collateralized borrowing. The de-risking suggestion of Gauntlet is garnering support from the community of users and the proposal could soon be put to vote.
Egorov currently has 267,432,866 CRV collateral and 54 million USDC debt on Aave V2. Voting on the proposal is a risk response to michwill (Egorov’s) positions, attempting to fight the risk of bad debt on AAVE.
CRV price is $0.569 at the time of writing, recovering from its drop to $0.485 on Tuesday.
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Author
Ekta Mourya
FXStreet
Ekta Mourya has extensive experience in fundamental and on-chain analysis, particularly focused on impact of macroeconomics and central bank policies on cryptocurrencies.
