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Decentralized autonomous organizations (DAO) operate via proposals and votes of the participants who have governance power. The majority of the votes, if in support or against decide the fate of the proposal. They also get stuck in arguments sometimes, as the recent one over the Aave platform. One side is seeking the safeguard of the network while the other side calls it a violation of “neutrality” over the protocol.
The proposal was put forward by Gauntlet, a known financial modeling firm. It cited an Ethereum wallet address accumulating debt worth $67.7 Million. The loan was taken out in the form of USD Coin (USDC) and Tether (USDT) stablecoins. AAVE v2 protocol initiated the process and the borrower put $185 Million worth Curve (CRV) tokens as collateral.
Author of the proposal showcased the concern that given the past activities, the account is likely to accumulate more debt. This would not bring a fruitful outcome since Curve token price is sliding for the last several days. And if it continues and meets with a sudden fall, the debt may get liquidated.
Curve Dao Token (CRV) is currently trading at $0.588. The token price has been constantly dropping for about ten days now, since June 5. At the time, CRV token was trading at $0.86. The cryptocurrency lost over 30% since then. CRV token also faced difficulties in maintaining liquidity in the past few months.
With this to continue, Aave protocol could face difficulties with slippage, considering the liquidation of the account. In any case of havoc, if there are not enough buyers to buy the huge pile of CRV tokens in the crypto market, it will lead to liquidation. If continued, this will end up becoming a bad debt worth Millions of dollars for Aave protocol.
Amid the conversations around the issue, an Aave user dubbed DecentMuse made the claim about the ETH wallet address, calling it related to the founder of Curve protocol. Michale Eforov, founder of Curve, was said to be behind the loan, however there’s no official confirmation until now.
The Aave user thinks of the instance as the founder’s way to get profitable after selling off his portion of CRV tokens.
According to the proposal of Gauntlet, the Aave Dao needs to implement a patch which will restrict the use of CRV tokens as loans collateral over the platform. This way, the existing as well as potential such debt accumulation would get stopped
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
