Curve Founder's Debt Poses Threat to Multiple Defi Protocols

Michael Egorov, the Russian founder of Curve, borrowed $100 million on AAVE to buy a house in Australia. He used $280M of CRV as a guarantee for the loan. However, Curve was hacked recently.

The thief stole millions of dollars and has about 7 million CRV in his wallet. The big problem is that everyone knows Michael is in trouble. This is causing a domino effect as people rush to sell off their CRV, causing the price to drop.

Delphi Digital highlighted that Michael's Fraxlend position is doubling every 12 hours. If nothing changes, he will be forced to sell 59 million CRV in a few days. The market doesn't have enough liquidity for a 59m sell-off.

If Michael is forced to sell by Fraxlend, all his other debts will also be called in. This means Inverse Finance (INV) and Magic Internet Money (MIM) will likely collapse due to the new bad debt, and Aave will be left with $63m of bad debt.

Aave will need to sell $63m of Aave to cover it, but fortunately, Aave's safety fund is around $330m, more than enough to cover the bad debt.

In the past 12 hours, Michael has lost $50m due to CRV's falling price. 

The value of CRV has dropped to $0.50 from $0.72 a week ago, and if it hits $0.38-$0.40, Michael will have to sell.

This situation shows that DeFi is working as it should. It's a ruthless free market ruled by math and code, with no special rules or bailouts. However, it might also scare off potential investors who are wary of DeFi's unpredictability.

In an attempt to manage his debt, Egorov has paid 4 million FRAX within 24 hours. Additionally, he launched a Curve pool to attract funds, bringing in $2 million and reducing the utilization rate from 100% to 89% in just a few hours. These high-risk positions could really affect the $CRV price, potentially leading to a great knock-on effect in the DeFi ecosystem. Egorov's fast  action in reducing the debt has been met with an equally quick response from the DeFi community, who pull out their funds as soon as Egorov makes a payment. 

This reflects the risky position Egorov finds himself in, highlighting the volatility and rapid response times within the DeFi community. While he makes efforts to stabilize his financial situation, the fluctuating nature of the crypto market could still present challenges ahead. This underlines the built-in risks and unpredictability that potential investors must navigate in the DeFi landscape.