due to a vulnerability in the Vyper programming language, resulting in around $70 million being stolen. This exploit has raised concerns about the collateralized loans taken out by Curve founder Michael Egorov, who has borrowed over $100M against approximately 460M CRV tokens, representing 47% of the total supply. A drop in the price of CRV could lead to a liquidation of Egorov’s position and kickstart a liquidation cascade.Contagion risks and the outlook for DeFi.
A collapse in CRV price would likely force these protocols to begin liquidating the CRV collateral backing loans on their platforms. However, with minimal liquidity, these mass liquidations could rapidly wipe out the CRV value.Protocols forced to liquidate CRV collateral at fire sale prices would likely have to absorb substantial bad debt. Those that isolated risk, like Fraxlend and Aave V3, would see losses contained to CRV lenders.
But losses may spread more widely from protocols like Aave V2 that didn't isolate risk. There is also exposure for stablecoins like Abracadabra's MIM that hold CRV in collateral baskets.