DeFi

Curve founder Michael Egorov says he has fully repaid the $10 million in bad debt resulting from soft liquidations that were triggered due to a hacking attempt on June 13.
Following the incident, Egorov took to social media to explain, “ [The] size of my positions was too large for markets to handle and caused $10M of bad debt,” before claiming he had already paid<a href="https://cointelegraph.com/news/curve-founder-repays-bad-debt-liquidation" rel="noopener noreferrer nofollow"> 93% of the debt</a>.
<h2 id="the-hack">The Hack&nbsp;</h2>
The June 13 hack attempt resulted in soft liquidations of Egorov's positions due to a dramatic, temporary increase in borrowing costs. At the height of the crisis, Egorov faced $140 million in liquidations due to $95 million in stablecoin debt, and a $60 million annualized fee to keep his positions open.
More significantly, Curve's token, CRV, suffered a sharp decline amid the incident—<a href="https://cointelegraph.com/news/curve-finance-soft-liquidation-crv-drops-28" rel="noopener noreferrer nofollow">plummeting by 28%</a>. As a remedy, the Curve founder proposed burning 10% of CRV tokens, valued at $37 million, to stabilize the price of the token and offered increased APY as an incentive to voters of the initiative.
Related: <a href="https://cointelegraph.com/news/curve-finance-awards-250k-finding-reentrancy-vulnerability" rel="noopener noreferrer nofollow">Curve Finance awards dev $250K for finding reentrancy vulnerability</a>.
Curve's recent crisis has reignited questions and concerns surrounding the risks posed by Egorov's debt positions to the stability of the Curve platform, first proposed in a 2023 Delphi Digital report. The report argued that Egorov's $100 million in loans across DeFi protocols could trigger an<a href="https://cointelegraph.com/news/curve-finance-founder-100-million-debt-could-trigger-defi-implosion" rel="noopener noreferrer nofollow"> implosion in DeFi</a>.
<h3 id="llamma-soft-liquidation-mechanism-works-as-intended">LLAMMA soft liquidation mechanism works as intended&nbsp;</h3>
Despite the significant pressures placed on the Curve platform, LLAMMA's soft liquidation mechanism performed as intended, Curve founder Michael Engorov explained.
<blockquote>
 "The system showed a fantastic performance. This gave time for liquidators to prepare funds and OTC-liquidate the hacker's position. As a result, the system has no hacker's funds left, no bad debts, everything operates well."
</blockquote>
The soft liquidation mechanism works by eroding a borrower's "health" as a debtor and slowly liquidating their funds. Once the borrower's health has hit 0%, the mechanism performs a hard liquidation of the borrower's assets and closes out that loan.
Magazine: <a href="https://cointelegraph.com/magazine/crypto-zero-knowledge-voting-finance/" rel="noopener noreferrer nofollow">Beyond crypto: Zero-knowledge proofs show potential from voting to finance</a>.

Curve Finance's Michael Egorov says $10M in bad debt fully paid

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Cointelegraph

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