In the wake of the recent hack on Curve Finance that resulted in the theft of $52 million worth of crypto assets, the Aave Chan Initiative has proposed a strategic move to strengthen the decentralized finance (DeFi) ecosystem. Aave Chan founder Marc Zeller has recommended that Aave’s treasury should purchase $2 million worth of Curve tokens (CRV) from Curve founder Michael Egorov.
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The Proposal and its Implications
Zeller, who is also the founder of the blockchain consultancy firm Pandemic, suggested that the acquisition of 5 million CRV would send a “strong signal of DeFi supporting DeFi.” He proposed that these tokens could be locked up and turned into veCRV, giving Aave voting rights on the Curve platform, particularly to incentivize liquidity for token pairs involving Aave’s stablecoin GHO.
This move comes after Michael Egorov has been selling large quantities of CRV in over-the-counter transactions, including sales to prominent figures like Tron founder Justin Sun. Egorov’s sales have been aimed at managing his large loan positions against CRV. With CRV’s price at risk due to its significant use as collateral on lending protocols like Aave, Zeller’s proposal is seen as a way to stabilize the ecosystem.
Mixed Reactions from the Community
While some in the community have praised the proposal for potentially reducing the risk associated with CRV’s over-leverage and supporting GHO’s growth, others have voiced concerns about increasing Aave’s exposure to CRV’s liquidation risk.
“The treasury balance and the predicted lower costs for service providers for the 2023-2024 budget would allow this strategic acquisition while maintaining a conservative stance with DAO treasury holdings,” noted the proposal.
However, a counter-argument from the community stated, “Aave should think about ways to reduce its exposure to the risk of CRV liquidation, NOT increase its exposure even more.”
The proposal’s success will depend on a vote within the Aave community. If approved, it will mark a significant moment in DeFi collaboration and strategy. On the other hand, the move could raise further questions about the intertwined risks and dependencies within the DeFi space.
Additionally, the sale of 10 million CRV tokens for $4 million to Huobi’s co-founder Jun Du further highlights the ongoing CRV trading activity, raising more eyes on the stability and future of Curve.
As the DeFi landscape continues to adapt and respond to recent events like the Curve exploit, such strategic proposals underscore the complex interplay of innovation, risk, and collaboration that defines the space.
Support and Opposition to the Proposal
The community’s reaction to the proposal of Aave’s treasury purchasing $2 million of CRV tokens is mixed, reflecting a tension between perceived benefits and potential risks. While some see it as an opportunity to strengthen Aave’s position and support the DeFi ecosystem, others raise serious concerns about the increased risk of liquidation and the prudence of such a strategy, particularly in light of existing vulnerabilities. The conflicting views underscore the complexity of the issue and the need for a careful and considered approach.
A user by the username x38x strongly opposes the idea, arguing that it increases Aave’s exposure to CRV liquidation risk, rather than reducing it. This user sees the proposal as a misguided attempt to help an individual user at the expense of Aave stakeholders and lenders, even questioning the ethics of the decision in the context of decentralized finance.
Another user from Aave commuinty weighs the pros and cons, highlighting the potential benefits like ameliorating Aave’s exposure to CRV, facilitating the decentralization of GHO, and gaining influence in CRV’s governance. However, they also acknowledge the risks, such as increasing exposure to CRV and uncertainty over Egorov’s actions. Despite the concerns, this user supports moving straight to a community vote, provided the necessary inputs are gathered.
Another user lmihaylov expresses strong dissent, focusing on the potential for a “black swan” event that could have severe consequences for both Curve and Aave. They emphasize the importance of cash preservation and caution against unnecessary risk-taking, particularly given the volatility of related assets like BTC. This user suggests an alternative approach of seeking OTC investors to offload the CRV loan if necessary, rather than buying more CRV tokens.