Exchange liquidity protocol Curve has launched its first native stablecoin — crvUSD.
The news coincides with a trader borrowing most of the available Curve DAO token (CRV) on Aave, over $50 million worth. The spike in the price of CRV over the past 8 hours put that position very close to liquidation.
The trader is presumed to be Avraham Eisenberg, previously linked to the controversial exploit of Mango Markets on the Solana network, based on Discord discussions related to the trade.
Eisenberg did not immediately return a request to comment via Twitter.
The trader, or trading group, had about $58 million in USDC supporting a $50 million loan of CRV as of 12:20 pm ET on Tuesday.
By 12:55 most of the position was liquidated, leaving the Aave protocol with about $1 million in bad debt.
It’s not clear what their strategy is, but the Aave position is perilously close to liquidation, causing concern over downstream effects to the Aave protocol.
The Curve Finance stablecoin
Michael Egorov, Curve’s founder previously said the stablecoin will maintain its peg to the US dollar through overcollateralization.
Its latest white paper reveals that the stablecoin’s design will be executed through the Lending-Liquidating Automated Market Maker Algorithm (LLAMMA) which converts between collateral and the stablecoin. So, if the price of a collateral (ETH) dips, the automated market maker will convert deposits to a stablecoin (USD).
LLAMMA will automatically calculate bands to locate where the collateral sits, and if the price of the collateral changes, it will be converted to the stablecoin.
The crvUSD will maintain its peg to USD through a peg-keeping reserve that is formed by an asymmetric deposit (when the outcome of the deposit has more profit than loss or risk taken to achieve the profit) into a stableswap pool made up of the stabletoken and a redeemable reference coin or an LP token.
The timing of the launch is interesting — it appears to have caused a sharp rise in the price of CRV, putting the collateral for the trader’s loan in danger.
Eisenberg transferred the CRV tokens to OKX, a Seychelles-based cryptocurrency exchange and derivatives exchange, but the subsequent use of those tokens is not known.
Egorov maintains a large position on Aave using CRV as collateral, which some have speculated could be the target of the trade — if the CRV was sold, creating a short position.
However, it could also be the case that a more complex strategy involves purposefully allowing the CRV loan to be liquidated, which would force Aave liquidators to buy back CRV using the trader’s USDC collateral.
This is a developing story and will be updated.
This story was updated on Nov. 22, 2022 at 1:00 pm ET.
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