Analysis of Curve founder's "mortgage-style cash-out" behavior: from short-selling costs to market impact

By Yilan, Invest & Research@LD Capital

The recent cash-out behavior of the founder of Curve and the continuous mortgage of CRV to lend stable currency have become the focus of market attention when market liquidity is affected by SEC events. In order to analyze the cost, possibility, and related impact of shorting on the CRV chain, let’s first look back at last year’s CRV long-short battle to see how the past short-selling operations were carried out.

Shortly after the FTX thunderstorm last year, when the market lacked confidence and liquidity was extremely shrinking, a giant whale lent a large amount of CRV tokens from Aave and transferred them to the OKX trading platform, lending a total of 47 million CRV, which was smashed by the giant whale Influenced by short-selling, the price of CRV fell from $0.545 to $0.424, a drop of 21.88%, reaching a minimum of $0.4. This operation is to repeatedly borrow and transfer tokens on the chain to suppress the currency price for large-scale short-selling.

Then founder Michael bought CRV to drive up the currency price. Despite the liquidation risk on Aave accounts, shorts still have the potential to profit. One way to make a profit is to conduct high-leverage short trades on trading platforms such as OKX, and take advantage of the lack of market liquidity and lack of strong bull interference to obtain high-probability profit opportunities. Another way to profit is to convert a short position into a long one. When the market liquidity is exhausted, short positions are closed and longs are replaced.

Aave canceled CRV lending after the CRV long-short game event (that is, it is impossible to short-sell through the same on-chain revolving loan with increasing leverage).

In addition, the centralized trading platform also provides the opportunity to borrow money to short.

Currently, the chip distribution of CRV tokens is as follows: Curve dex holds 116 million, Binance holds 65.47 million, OKX holds 12.56 million, and other centralized trading platforms have a total of 53.29 million.

It can be seen that the centralized trading platform holds a large number of CRV tokens, accounting for 15% of the total circulation. However, due to the lack of centralized trading platform data, it is impossible to calculate the possible short-selling behavior cost.

At present, the total liquidable amount of CRV on the chain is 113 million US dollars, of which 99% (289 million CRV) is concentrated around the price of 0.375 US dollars. ——This means that shorting by borrowing currency may be enough to push the price close to the liquidation price, but the founder of Curve has the ability to add a margin to make the liquidation price continue to move down, and the cost of simply shorting will be very high.

Aave launches CRV and CRV liquidation levels

But in fact, no one can liquidate the CRV of this size, so if Aave wants Michael to repay his loan, reducing the LTV of the CRV loan pool is the correct risk control measure, but it should not suddenly change the LTV to 0, which will cause Aave The risk of bad debts has increased significantly.

Although there are fewer ways to borrow CRV on the chain, the CRV spot selling pressure on the chain is greater, and the short-selling behavior of the centralized trading platform has increased significantly in the past 6 hours (190%+ APY on BN to short CRV), and the OI has increased in two hours 500w, 24hr increase 1400w.

The founder of CRV currently has loaned more than 44 million stablecoins in AAVE, Abracadabra, Fraxlend, Curve, and Inverse Finance. If liquidation occurs (see a thread for specific information such as liquidation prices), these lending platforms have potential bad debt risks.

But in fact, the CRV of the size of Aave will be liquidated in the case of a large slippage, so reducing the LTV of the CRV lending pool is a correct risk control measure, but it should be lowered slowly instead of suddenly changing the LTV to 0, so that It will lead to a great increase in Aave's bad debt risk.

In the past day, the founder Michael retrieved more than 700 wCRV (25%+) from Fraxlend, and deposited it in Inverse Finance (fixed borrow rate 6.84%) 0x73f8af This address is created by Inverse Finance FiRM CRV market, the address Curve founder is at this address At least more than 600 wCRV have been mortgaged. Currently, there are more than 900 w TVL in the Inverse Finance CRV pool, most of which are mortgaged by CRV founders.

In addition, Abracadabra also continued to mortgage 400w CRV, and nearly 8000w CRV was in Abracadabra CDP.