What happened to CRV this week?

Over a month ago, Avraham Eisenberg published a strategy that could create bad debt for AAVE.
This week, he deployed this strategy with CRV.

The plan

• Whale address (Michael Egorov — Founder Curve) used a large amount of CRV mortgage and loan on AAVE
• Avraham uses 50 million USDC as collateral on AAVE to borrow CRV and dump it on the market to lower the price to the liquidation threshold of this whale.
• To avoid liquidation on CRV position, the whale has to strengthen their position by buying and depositing more CRV, which keeps CRV price to decrease further.
• Meanwhile, Avraham will open a buy/long order on CEXs.
• Due to low liquidity, the CRV price will pump and make Avraham’s loan position on AAVE liquidated.
• AAVE is forced to liquidate Avraham’s position.
• As a results of sudden whale’s purchase, CRV’s liquidity keeps diving deeper.
• AAVE had to use USDC as collateral to buy CRV and fill back into the protocol. CRV price increases rapidly.
• Avraham ends the buy/long position when the loan is fully liquidated.
• AAVE has to take on more bad debt as a result of the CRV pump price being too high. Safety Module will sell AAVE to cover this debt .
• Avraham can also short on AAVE.

How did it actually go?

• Founder Curve now has a loan of 48 million CRV as collateral on AAVE with a liquidation price of $0.259.
• Avraham borrowed a total of 92 million CRV based on 64 million USDC collateral. CRV was borrowed many times, sold to the market, and even used MEV bot to maintain downward pressure.
• CRV price has decreased from $0.543 to $0.41
• Founder Curve added 20 million CRV to collateral to strengthen his position.
• After that, Curve Finance suddenly released the stablecoin whitepaper, causing the price of CRV to start to increase.
• This made the CRV dump/pump price squeezes not as planned. Which made Avraham‘s plan partly failed and stopped sooner.

Why did he choose CRV?

After previous stablecoin war, protocols like Convex, Frax Finance, … all try to buy CRV and lock in 4 years to control votes for CRV emission. This results in a weird situation that only 30% tokens of total supply are now circulating on the market. Thus, CRV is extremely illiquid.

The result
Currently Avrahams position has been completely liquidated, leaving a bad debt of 2.64 million CRV ($1.6 million) to AAVE. AAVE will discuss with the community to resolve this issue in the next few days.

The $1.6 million loss may sound bad. However, Defi is proving that their mechanism works. After the collapse of Terra and FTX, while the centralized entities are severely illiquid and falling into difficulties, the Defi protocols are still working effectively thanks to their transparent mechanism.