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How did four lending platforms resist the risk when Curve faced liquidation risk?

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All that was done was to make sure that the Curve founder pays back first.

Original Title: "After the Curve Crisis, Are Lending Platforms Trapped in a Prisoner's Dilemma?"

Original Source: ODAILY Star Daily

The lending platform related to Curve founder Michael Egorov's personal debt has been on edge these days. After the Curve incident a few days ago, the DeFi sector is facing a major crisis of confidence.

Egorov has taken a series of actions to reduce the risk of liquidation, such as launching the crvUSD/fFRAX pool on Curve, which affects the debt rate of the CRV/FRAX pool on Fraxlend, and selling a large amount of locked CRV for 6 months through OTC to repay the debt. According to on-chain analyst Yu Jin's monitoring, as of 10 pm on August 2nd, Egorov has sold a total of 59.5 million CRV, exchanging for $23.8 million in funds.

The Curve event seems to have turned for the better (at least for DeFi). However, core lending platforms like Aave, Fraxlend, Abracadabra, and Inverse, which were involved in the incident, are busy preparing for the worst. They have proposed significant changes to the Curve pool in order to reduce the risk of future bad debts and chain liquidations.

Odaily Planet Daily has conducted an investigation into the latest actions of these four platforms and shares their improvement directions and progress as follows.

Aave

Aave, as the largest borrower in the industry, its subsequent actions are the most worthy of attention. How to avoid the impact of large positions on the normal operation of the platform specifically?

Actually, there was already a clearing risk in late May to mid-June this year. Egorov first purchased a mansion, then was sued by three VCs, and later borrowed a total of 71 million US dollars in stablecoins from Aave (according to Lookonchain), which caused panic in the market about him.

In mid-June, ChaosLabs launched a proposal on Aave to slowly suppress overheating behavior by reducing 3% of CRV LT. The proposal was passed, but the effect was not significant. (On June 15th, CRV fell to a monthly low of 0.558 USDT.)

Gauntlet later suggested freezing CRV on Aave's governance forum and setting the CRV LTV to 0 on Aave v2. The details are as follows:

Unfortunately, this proposal did not pass due to insufficient votes and a large number of opposing votes. At the time, some voices on Aave's governance forum believed that this was not decentralized enough and that it was not appropriate to restrict Egorov simply because of the size of their borrowing.

Recently, the Aave governance forum has discussed the Curve incident, hoping to minimize the risk on the Aave platform through previous solutions. This measure can to some extent restrict the use of the CRV pool on Aave.

However, Emilio from the governance forum believes that even if LTV is set to 0, it can still be circumvented through lightning loans.

Regarding this, dForce founder Mindao explained to Odaily Planet Daily: "LTV inspection requires checking the account equity. In a flash loan transaction, there is borrowing and repayment, which will not affect the change in account equity. You can continue to borrow through flash loans (this may be ignored in the V2 mechanism). However, this only applies to flash loans, and it is actually possible to restrict the addition of non-flash loan borrowings. This person feels that they are looking for a convenient excuse to oppose any adjustments."

Fraxlend

As a participant in the encryption industry, I can translate the following Chinese text to English:

Fraxlend, as the party with the highest risk to Egorov in the settlement storm, forced Egorov to repay its debt on the platform first due to the use of risk isolation and special interest rate adjustment mechanisms. Fraxlend's better mechanism placed it in a position of priority repayment in this settlement storm.

For specific details and advantages of Fraxlend's interest rate adjustment mechanism, please refer to "How is Fraxlend's interest rate calculated? Can it reach 10,000% in just three and a half days?".

Abracadabra

In this incident, Abracadabra also acted quickly and has proposed an emergency freeze of the CRV market liquidation through AIP #13.4. Although there were only 5 voters, the lack of decentralization in governance at this time actually reflects the advantage of decision-making efficiency.

Abracadabra has released AIP #13.5: Proposal for the Adjustment of CRV LP Interest Rates. This proposal redefines the way interest is earned by determining the amount of interest deducted through the product of the corresponding interest rate and collateral ratio. The specific interest rates are shown in the following figure:

Currently, DeBank data shows that Egorov still needs to repay approximately 12 million US dollars of MIM.

Under Abracadabra's new proposal, there are only a few hours left for Egorov's reserved nearly 46 hours, and the situation is not optimistic. Although this move is domineering, it is effective and aims to quickly reduce its own bad debt risk. Egorov is likely to continue to repay MIM through off-exchange OTC transactions.

Inverse

On the evening of August 2nd, a proposal was released by community member edo regarding the Curve incident. In comparison to the previous three proposals, Inverse's proposal is relatively mild due to its lower debt position. The proposal aims to lower the collateralization ratio of CRV, cvxCRV, st-yCRV, and cvxFXS, while increasing the liquidation incentives of cvxCRV, st-yCRV, and cvxFXS. The details are shown in the following table: