Aave Community Rejects Proposal to Freeze Curve Founder’s CRV Tokens

The Aave community has decisively voted against a proposal by risk management firm Gauntlet to liquidate a large loan held by Curve founder Michael Egorov.

On June 18, 2023, the Aave community voted overwhelmingly to reject Gauntlet’s proposal to freeze Michael Egorov’s CRV collateral on Aave V2. This decision ensures that Egorov’s CRV tokens will remain unfrozen.

Gauntlet, which contributes to Aave's governance with a focus on security, had suggested freezing CRV tokens on Aave V2 and reducing the Loan-to-Value (LTV) ratio of CRV to zero.

The proposal followed Egorov's significant loan of $63 million in USDT, collateralized by 288 million CRV tokens valued at $180 million. Additionally, Egorov had deposited $24 million worth of CRV into Aave to prevent liquidation as CRV's price showed signs of decline. On-chain data indicated that Egorov holds 288 million CRV, accounting for 30% of the total circulating supply.

Gauntlet argued that freezing CRV on Aave V2 could encourage Egorov to reduce his debt or diversify his collateral, thus protecting Aave from potential bad debt accumulation if CRV's liquidity dwindles. The proposed freeze was also intended to move CRV collateral to Aave V3, where risk parameters are better suited to the CRV market. However, this approach could contradict Aave's "Code is law" philosophy.

Despite the proposal, Egorov's loan maintains a health factor above 1.6, indicating no immediate risk of bad debt for Aave.

Curve Founder in the Spotlight

Curve Finance and its founder, Michael Egorov, have been embroiled in several controversies over the past two months:

• June 10, 2023: Egorov was sued by crypto funds 1kx, Framework Ventures, and ParaFi Capital for allegedly orchestrating a "sophisticated fraud scheme."
• Late May 2023: The community discovered that Egorov and his wife purchased two mansions worth a combined $40 million, including Avon Court, a castle built in the 1870s.
• June 15, 2023: Following a market downturn due to the Fed's interest rate announcement, the proportion of USDT in Curve's 3pool exceeded 75%, as users exchanged USDT for USDC and DAI, raising the pool's assets to over $414 million. Historically, USDT's proportion in the 3pool has only surpassed 50% during crises, such as the FTX collapse in November 2022 and the liquidity crunch caused by LUNA-UST and Three Arrows Capital in mid-2022.
• March 2023: The USDT share in Curve's largest stablecoin pool dropped below 5% during the U.S. banking crisis, as DeFi users fled from USDC.

The Aave community's decision reflects a careful consideration of the potential risks and benefits of Gauntlet’s proposal, ultimately choosing to maintain the current status quo regarding Egorov's CRV tokens.

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