Controversy over Aave’s proposal to freeze Curve founder’s loans.
A proposal made by AAVE on June 12 aimed at preventing a specific account from accumulating more debt has sparked controversy. Some participants argue that the proposal violates the principles of censorship-resistance or “neutrality” in decentralized finance, or DeFi.
There are speculations that the account in question is owned by Curve founder Michael Egorov, but this has not been independently confirmed.
It appears that Curve’s founder has a $110m leverage position against his $CRV stack across all Defi. If not repaid at some point (spoiler: it probably won’t, my man is taking profit), this will cascade into a lot of bad debt for lending protocols https://t.co/kxwc0Sk65V pic.twitter.com/yhHp9JFWBV
— vapor (@trading_vapor) June 14, 2023
According to Gauntlet, the author of the proposal and a financial modeling platform, the Ethereum address 0x7a16ff8270133f063aab6c9977183d9e72835428 has accumulated $67.7 million worth of debt in US Dollar Coin ( USDC ) and Tether ( USDT ) through the AAVE V2 protocol using $185 million of Curve tokens as collateral.
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Gauntlet expressed concerns that this account may continue to increase its debt, leading to the risk that it may be liquidated if there is a sudden fall in the price of Curve. Compounding the problem in Gauntlet’s view is the fact that CRV has suffered a decline in liquidity over the past few months. This may cause slippage if the account gets liquidated, as there may not be enough buyers of CRV in the marketplace willing to take on such a large amount of tokens.
Gauntlet suggested that the AAVE decentralized autonomous organization (AAVE DAO) should implement a patch to freeze any further uses of CRV as collateral for loans. This would allow the account to continue holding its current loan position, but would also prevent it from accumulating any further debt.
Some forum participants supported the proposal and criticized the account for accumulating so much debt, while others defended the account, believing that the owner may simply believe CRV tokens are undervalued and therefore increasing their use as collateral as the price declines.
The proposal is listed as a “recommendation” as of June 16, meaning that it has not yet been turned into a formal AAVE Improvement Proposal (AIP) that can be voted on by the DAO.
The blockchain ecosystem continues to debate the limits of censorship-resistance, with some arguing for more regulation and others advocating for complete freedom to utilize the protocol as users see fit.
On April 11, Tether prevented an address that had stolen $25 million from EVM front-running bots from making any further transactions. Polygon co-founder Jaynti Kanani expressed concerns that this action could set a negative precedent, potentially leading to more censorship of transactions. On-chain investigator ZachXBT suggested that Tether may have been compelled to take this action due to a court order.
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