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Design Flaw Left Liquidity Protocol Aave With $1.6 Million in Bad Debt

Cointime Staff· 2 min read

An unidentified trader, believed to be Mango Markets exploiter Avraham Eisenberg, accumulated a roughly 92 million token loan of CRV, the native token of Curve Finance, over a period of six days. But rather than pay back the loan, the trader allowed a total of about $63.6 million in USDC collateral to be liquidated.

This left Aave with 2.64 million CRV, roughly $1.6 million at current value, in bad debt — borrowed CRV that will never be repaid. 

Curve’s founder, Michael Egorov, is known to have a nine-figure CRV stash on deposit in Aave that could become vulnerable if the price of CRV fell sharply. Although it is uncertain what the next steps for Aave are, the protocol tweeted today that the community would be initiating discussion in response to this incident. 

Aave full tweet thread:

1/6 We want to address the cycle of liquidations that occurred in the CRV pool on the Aave Protocol today. The liquidations were successful (and worked as designed), but unfortunately, the size of the position left some excess debt within the protocol.

2/6 A large CRV borrow that had been building up for the last week was mostly cleared by the protocol liquidation process. However, the position was not covered entirely & 2.64M CRV (≈ $1.6M at current value) remains. This represents < 0.1% of the borrows on the protocol.

3/6 The Aave ecosystem was built with a number of mechanisms that the Aave community can deploy to cover events like this, including the Safety Module, the Ecosystem Reserve & the DAO Treasury.

4/6 In the coming days, we believe the Aave community and its contributors will initiate a discussion in response to this incident.

5/6 Community contributor @monetsupply additionally opened a discussion on the governance forum on reviewing long-term asset risk on Aave V2 market.

6/6 Most importantly, today’s events are in contrast to those we have seen with centralized entities in the space – the transactions were entirely traceable and auditable on-chain, providing transparency for users and the community.


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