AAVE Proposes to Repay Excess Debt in CRV Market for Aave V2 ETH

UTC by Steve Muchoki · 3 min read
AAVE Proposes to Repay Excess Debt in CRV Market for Aave V2 ETH
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The Mango market was a victim of Avraham Eisenberg’s trading skills, which tricked down to the AAVE protocol.

On November 23, authors llamaxyz and Gauntlet proposed to the AAVE community a path towards repayment of excess debt in the CRV market, following the Mango protocol exploit a day earlier. Although the threats have been contained – the attacker’s position got total liquidation – the AAVE network has an outstanding debt balance of approximately $1.6 million and is dependent on the CRV token price.

As such, Llama and Gauntlet proposed using Gauntlet’s insolvency refund and Aave’s Treasury to cover the excess debt. Moreover, the damage touched many interested parties, including top CRV traders like Curve.fi founder, who faced collateral liquidation.

Notably, the Mango market was a victim of Avraham Eisenberg’s trading skills, which trickled down to the AAVE protocol. As per on-chain data, ponzishorter.eth – who has been identified as Eisenberg – shorted Curve’s CRV by borrowing and dumping.

The action by Eisenberg cannot be ruled illegal since he is just utilizing features advertised by crypto protocols, including different price oracles, popularly known as arbitrage trading. Over the course of Eisenberg’s trading, he used available resources to make small profits with minimal risks.

AAVE Plans to Make CRV Holders Whole

The Aave’s Safety Module has assessed the excess bad debt and classified it as one within the limit. As such, the CRV token holders can rest assured a possible solution will be provided for the $1.6 million bad debt accrued by AAVE.

“Over this past week, the user 0x57e04786e231af3343562c062e0d058f25dace9e opened a short position on CRV using USDC as collateral. At its peak, the user was shorting ~92M units of CRV (roughly $60M at today’s prices). The attempt to short CRV on Aave has been unsuccessful, and the user lost ~$10M USD from the liquidations. The user has been fully liquidated, but despite this, Aave has accrued a much smaller (~ $1.6M) bad debt position as of today’s CRV price,” the proposal indicated.

Forward, the AAVE community has been advised to review the risk/reward trade-offs of allowing users to short certain assets. Moreover, the bad debt would not be in existence if the AAVE community had revisited the matter earlier.

Side Notes

The sophisticated arbitrage methods deployed by Eisenberg have targeted the NFT market and also the borrowing and lending market. Additionally, Eisenberg has also ventured into the validator business to tap blockchains priority on some transactions.

Notably, the AAVE network has not been significantly affected by the Mango protocol’s short-selling attack. According to the latest crypto price oracles, AAVE coin traded around $58 on Thursday, up 0.1 per cent in the past seven days.

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Steve Muchoki

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