Aave Feeling the Squeeze Even After Failed Try by Mango Hacker

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Decrypting DeFi is Decrypt’s DeFi e mail e-newsletter. (artwork: Grant Kempster)

Essentially the most fascinating story in DeFi this week was the return of the “extremely worthwhile dealer” Avi Eisenberg.

You would possibly keep in mind that Eisenberg attacked Solana-based Mango Markets final month, making off with greater than $100 million. This week, he took on a a lot larger venture: The $3.64 billion crypto lending platform Aave.

And like together with his Mango assault, Eisenberg merely labored inside the parameters of the venture’s code. There was no fraud, hacks, backdoors, or tax loopholes.

Though he in the end failed this time, it served up one other entertaining chapter for on-chain crypto sleuths. Right here’s the way it went down.

Over the course of ten days starting on November 14, Eisenberg amassed a mortgage on Aave for 92 million in CRV, Curve’s governance token (roughly $39 million on the time), utilizing $50 million within the stablecoin USDC as collateral.

He then started sending these CRV tokens in hefty chunks over to the centralized trade OKEx, more likely to promote. After that, he took the brand new USDC he swapped for these CRV tokens to borrow extra CRV and repeat the cycle.

He was principally constructing an enormous quick place on the CRV token. However why quick CRV? Amid the chaos, two theses emerged.

The primary revolved round Eisenberg’s ambitions to liquidate Curve founder Michael Egorov’s huge CRV mortgage. In keeping with knowledge from DeFi Llama, Egorov had an enormous $48 million mortgage on Aave that might have been liquidated if the worth of CRV dropped beneath $0.29. He did in the end come near being liquidated, however he then added one other hearty dose of collateral to evade destruction.

The second thesis that emerged was that Eisenberg was testing the boundaries of Aave. With such a big place taken out, even when Eisenberg was ultimately liquidated, the lending platform was nonetheless left with roughly $1.6 million in dangerous debt (or debt that the system can not repay).

Egorov didn’t get liquidated, and Aave hasn’t collapsed. However does that imply Eisenberg misplaced? Perhaps, perhaps not.

He misplaced roughly $10 million based mostly purely on what may be seen on chain by way of liquidations. However with a lot exercise additionally occurring on centralized exchanges, we’ll by no means actually collect a full image of the bigger scheme he was trying to execute.

What’s extra, he was actively tweeting all through the complete course of, including to the noise and thriller surrounding the occasion.

What about Aave’s dangerous debt?

Shortfalls like Aave’s have been thought of earlier than, and mechanisms are in place to shore up the lending platform.

Aave’s Security Module, for instance, would use a portion of staked CRV to fill the hole (this risk is why stakers earn cash within the first place—they’re being paid a premium to threat their funds getting used as a backstop). The protocol may additionally flip to its DAO treasury to make the platform entire.

One other proposal within the works proper now could be to make use of funds from Gauntlet, a DeFi-centric threat administration supplier, and the Aave treasury.

After that, further proposals have been launched by the Aave neighborhood to stop occasions like this week.

One proposal seeks to “briefly freeze” over a dozen tokens on Aave’s V2 and “promote eventual migration to V3.” One other proposal provides one other six token freezes and adjusts the cap on how a lot customers can borrow.

It’ll be as much as the Aave neighborhood to find out how finest to make the lending large entire once more.

Decrypting DeFi is our DeFi e-newsletter, led by this essay. Subscribers to our emails get to learn the essay earlier than it goes on the location. Subscribe right here.


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