Aave DAO Votes on Proposals to Limit Risk From Curve

The Aave community appears to be unanimously in favour of two proposals seeking to reduce the protocol’s exposure to the liquidation risk from the Curve founder’s borrowing position.

Two proposals that opened for voting on Thursday seek to reduce decentralized lending protocol Aave’s risk from an impending liquidation threat. 

One proposal seeks to decrease exposure to CRV by reducing the liquidation threshold by 6% for CRV tokens on Aave V2. Another proposal seeks to disable borrowing of CRV on Ethereum and Polygon V3, which would disable the ability to short CRV on the Aave protocol.

Both proposals were put forth by on-chain risk management platform Chaos Labs, which noted that volatility within Curve markets had notably increased after the recent exploit related to vulnerable Vyper smart contracts.

The exploit resulted in a rapid and sudden decline in the price of CRV, which put Curve founder Michael Egorov’s borrowing positions on various DeFi protocols at risk of liquidation. Egorov’s position on Aave, in particular, was a $70 million loan backed by 34% of CRV’s circulating supply.

In the days that followed, the Curve founder managed to raise a considerable amount of liquidity to pay off some of his debt by selling CRV through a number of over-the-counter (OTC) deals. 

However, the potential threat of liquidation still appears to be a concerning factor for market participants. So far, both proposals to mitigate the potential risk from CRV have received 100% support from Aave token holders. 

Voting on both proposals will conclude on Aug. 12, after which the proposed measures will be enacted by the protocol. 

Meanwhile, Binance Labs has announced a $5 million investment in CRV to support the ecosystem. As part of the collaboration, Curve plans to deploy its products to the BNB Chain.