Decentralized finance (DeFi) died yesterday. No protocols actually failed or tokens crashed to zero – though that was a distinct possibility. The interlinked economy of intermediary-less lenders, exchanges and trading tools is still, technically speaking, chugging along.
But the spirit that propelled DeFi forward, the dream of disintermediating money from power and providing easy access to basic and complex financial products without fear or favor is dead. And it wasn’t the U.S. Securities and Exchange Commission (SEC) that did it, but DeFi itself.
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On Monday, following a significant if not particularly lucrative series of attacks on several DeFi platforms including the systemically important Curve Finance, Curve founder Michael Egorov found himself in a precarious position as hundreds of millions of worth of personal loans he took out were in danger of liquidation.
Months earlier, Egorov had massively leveraged up on CRV tokens he earned from his role helping to launch Curve, one of the most used decentralized exchanges. In one loan, on open lending protocol Aave alone, Egorov had put something like 34% of the total supply of CRV tokens on the table to take out $63 million worth of stablecoins. He was active elsewhere, loaning out as much as 460 million CRV tokens – or 47% of the total supply – for $110 million.
See also: Crisis at DeFi Giant Curve Eases After Justin Sun and Others Step In With Help
The hack of at least three Curve trading pools on Sunday had put downward pressure on those loans, and had CRV dropped below a certain price (~$0.35) it would have triggered the programmatic sell off of Egorov’s loan collateral. That would have likely kicked off a vicious cycle where the CRV price would continue to drop, forcing other loans into liquidation, which would cause CRV to drop even lower.
That’s what’s known as a “death spiral.” CRV is used as collateral across the DeFi ecosystem, and the fallout could have brought the sector to its knees.
None of this came to pass, however, due to a series of behind-the-scene deals Egorov made last night with monied traders like TRON founder Justin Sun. He was able…
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