In the ever-volatile world of cryptocurrencies, the decentralized exchange Curve’s native CRV token has been facing a steep decline. The looming threat of a potential massive liquidation of the founder’s borrowed position is sending traders into a frenzy of short positions. This has driven CRV prices to a mere 5 cents, the lowest since November 22, a sharp drop of around 30% after Curve suffered a reentrancy attack.
As fear and uncertainty grip the market, traders have poured into perpetual futures tied to CRV, with the notional open interest soaring to $106 million. Furthermore, deeply negative funding rates are indicating that traders are aggressively shorting and betting on a further price decline.
At the center of these woes is Curve founder Michael Egorov, who currently faces a staggering ~$100 million loan backed by a significant 427.5 million CRV tokens, equivalent to approximately 47% of the entire circulating CRV supply. Analysts from crypto analytics firm Delphi Digital pointed out that Egorov has borrowed 63.2 million USDT from decentralized lender Aave against collateral of 305 million CRV. The loan will be liquidated if the CRV/USDT pair drops to $0.37.
Adding to the concerns is Egorov’s involvement with Fraxlend, where he supplied 59 million CRV as collateral for a 15.8 million FRAX loan. This borrowing presents a bigger risk to CRV due to Fraxlend’s Time-Weighted Variable Interest Rate, which can skyrocket to nearly 10,000% APY within days due to the current 100% utilization rate.
The potential liquidation of Egorov’s borrowings is putting Curve and the broader cryptocurrency market on edge. If liquidation occurs, CRV would flood an already weak market, creating a ripple effect of volatility throughout the decentralized finance ecosystem.
However, the extreme bearish positioning of CRV also opens up the potential for a short squeeze. This phenomenon occurs when bears abandon their pessimistic bets, causing a rapid upward price movement. With CRV’s deeply negative funding rates indicating high bearish activity, even a minor price bump could trigger a cascade of short sellers rushing to exit their positions, further driving up prices.
As investors brace for an uncertain future, opportunities may arise as market sentiment shifts and the threat of liquidation diminishes. If the market stabilizes and Egorov’s loans are resolved, CRV could see a substantial rebound. However, investors must remain cautious, as the cryptocurrency market is known for its wild swings and unpredictability.
The current state of the cryptocurrency market is marked by volatility and uncertainty, with the fate of CRV hanging in the balance. Traders are closely monitoring the developments surrounding Egorov’s borrowings, as they have the potential to inject further instability into an already delicate market. While the possibility of a short squeeze offers hope for CRV’s recovery, investors must exercise caution and carefully evaluate the risks before making any decisions in this turbulent environment.
