Justin Sun, founder of the TRON blockchain, made headlines recently for purchasing five million Curve tokens (CRV) in an attempt to help Curve Finance manage its debt situation.
According to blockchain data from Lookonchain, Sun acquired the tokens in an over-the-counter deal for $2 million worth of Tether (USDT), at an average price of $0.40 per token – below CRV’s market price of $0.59 at that time.
In a tweet, Sun said his joint efforts with Curve Finance founder Michael Egorov would introduce an stUSDT pool on Curve to “amplify user benefits and support the platform.”
Sun’s purchase comes amid concerns that liquidating the $100 million in loans taken out by Egorov could trigger turmoil in the DeFi ecosystem. These worries were exacerbated by a hack on Curve Finance last month that resulted in the loss of over $47 million worth of tokens.
According to Delphi Digital, a crypto research firm, Egorov’s loans are backed by 47% of all CRV in circulation, totaling 427.5 million tokens. Egorov has loans from Aave and Frax Finance secured by substantial amounts of CRV.
Egorov’s loan on Aave has a liquidation threshold of 55%, meaning his position could be liquidated if CRV falls to $0.37. Although his Frax debt is smaller, Delphi Digital noted it is riskier due to its variable interest rate.
In response, Egorov recently launched a new CRV/FRAX pool on FraxLend offering 100,000 CRV incentives, in an attempt to decrease the risk of his loans spiraling out of control.
While Sun’s assistance may help Curve Finance manage its debt in the short term, the exchange will need to implement additional precautions to minimize exposure to future security issues and unstable market conditions. Continued support from key stakeholders like Sun, alongside prudent risk management from Egorov and the Curve team, will be crucial to weather this debt crisis and restore confidence in the platform.
In the long run, only transparent governance, careful vigilance against potential threats, and a laser focus on stabilizing the network’s debt situation will determine whether Curve Finance emerges from this challenge with its reputation intact.