A June 12 AAVE (AAVE) proposal aimed at preventing a particular account from accumulating more debt has led to controversy, with some participants arguing that the proposal violates the principle of censorship-resistance or “neutrality” in decentralized finance, or DeFi.
Some participants believe that the account is owned by Curve (CRV) founder Michael Egorov. Cointelegraph was not able to independently confirm who the account’s owner is.
Uhh seems like Curve’s founder has a $110m leverage position against his $CRV stack across all Defi.
If not repaid at some point (spoil: it prob won’t, my man is taking profit), this will cascade into a lot of bad debt for lending protocols https://t.co/kxwc0Sk65V pic.twitter.com/yhHp9JFWBV
— vapor (@trading_vapor) June 14, 2023
According to the proposal’s author, financial modeling platform Gauntlet, the Ethereum address 0x7a16ff8270133f063aab6c9977183d9e72835428 has accumulated $67.7 million worth of debt in US Dollar Coin (USDC) and Tether (USDT) through the AAVE V2 protocol using $185 million of Curve tokens as collateral.
Gauntlet expressed fears that this account may continue increasing its debt, leading to the risk that it may be liquidated if there is a sudden fall in the price of Curve. Compounding the problem in Gauntlet’s view is the fact that CRV has suffered a decline in liquidity over the past few months. This may cause slippage if the account gets liquidated, as there may not be enough buyers of CRV in the marketplace willing to take on such a large amount of tokens.
This may lead to millions of dollars in bad debt for AAVE, Gauntlet suggested.
AAVE user DecentMuse claimed that the wallet address “is tagged as belonging to the founder of Curve,” indicating that it may belong to Egorov. In DecentMuse’s view, the loan may represent a way for the founder to take profits from his entrepreneurial activities on behalf of Curve. Cointelegraph was not able to confirm the identity of the address’s owner.
In the proposal, Gauntlet suggested that the AAVE decentralized autonomous organization (AAVE DAO) should implement a patch to freeze any further uses of CRV as collateral for loans. This would allow the account to continue holding its current loan position, but would also prevent it from accumulating any further debt.
Related: Bug in Aave v2 on Polygon causes some assets to become stuck in contracts
Some forum participants supported the proposal and criticized the account for piling on so much…
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