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Massive $47 Million Exploit Influences the DeFi Ecosystem
Finance Redefined ushers you into the intriguing world of decentralized finance (DeFi). In this weekly newsletter, we delve into the most impactful occurrences over the previous week.
The recent Curve Finance exploit that lost $47 million has sparked a ripple effect across the DeFi ecosystem. This arises mainly from the mammoth $100 million loan that Curve's founder took against the native Curve DAO (CRV) token. The instability of the CRV token value has led lending protocols to hastily propose new governance rules to limit associated risks. Moreover, on August 3, the native stablecoin of the ecosystem, crvUSD, got destabilized due to turbulent market conditions.
This Curve debacle could instigate a crisis in the DeFi ecosystem, which is considered the backbone.
Moreover, this Curve crisis adversely influenced DeFi token prices. Majority were trading in the red zone on the weekly charts.
$47 Million Loss due to Curve Finance Pool Exploits
On July 30, several Vyper-utilizing stable pools on Curve Finance were exploited leading to losses of over $47 million. This stemmed from defective reentrancy locks in versions 0.2.15, 0.2.16, and 0.3.0 of Vyper. While investigations continue, Vyper has encouraged projects that are dependent on these vulnerable versions to reach out to them for help.
Avoiding Total Collapse: The Role of the CEX Price Feed
A steep plunge in CRV price was seen in the DeFi market due to the substantial draining of multiple pools. Despite this, the central exchange (CEX) price feed played a crucial role in saving the day by keeping the token's price from hitting rock bottom. CRV was valued at $0.086 on decentralized exchanges but was trading at $0.60 on centralized exchanges.
Risks Originating From Curve Finance Founder's Massive Debt
A report from the crypto research company, Delphi Digital, has unveiled another pressing issue. Curve Finance founder, Michael Egorov, has an outstanding debt of approximately $100 million, secured by 47% of the circulating supply of CRV. This debacle has fuelled speculations about a possible large-scale CRV dump.
Impact on Curve's CrvUSD Stablecoin
Uncertainty surrounding Curve Finance caused its native stablecoin, crvUSD, to temporarily lose its peg on August 3. But it eventually regained its peg to the US dollar. CrvUSD employs a mechanism named PegKeeper algorithm to maintain its peg. This tool harmonizes the interest rate and liquidation ratio by analyzing the stablecoin supply and demand, ensuring the crvUSD value is adequately collateral-backed.
Overview of the DeFi Market
The total market value of DeFi witnessed a bearish trend the previous week. Data from TradingView showcase the majority of the top 100 DeFi tokens by market capitalization trading in the red. The total value locked in DeFi protocols stayed below the $50 billion mark.
