Aave Feeling the Squeeze Even After Failed Try by Mango Hacker

 Aave Feeling the Squeeze Even After Failed Try by Mango Hacker


Decrypting DeFi is Decrypt’s DeFi e-mail e-newsletter. (artwork: Grant Kempster)

Essentially the most fascinating story in DeFi this week was the return of the “extremely worthwhile dealer” Avi Eisenberg.

You may do not forget that Eisenberg attacked Solana-based Mango Markets final month, making off with greater than $100 million. This week, he took on a a lot greater undertaking: The $3.64 billion crypto lending platform Aave.

And like along with his Mango assault, Eisenberg merely labored inside the parameters of the undertaking’s code. There was no fraud, hacks, backdoors, or tax loopholes.

Though he in the end failed this time, it served up one other entertaining chapter for on-chain crypto sleuths. Right here’s the way it went down.

Over the course of ten days starting on November 14, Eisenberg amassed a mortgage on Aave for 92 million in CRV, Curve’s governance token (roughly $39 million on the time), utilizing $50 million within the stablecoin USDC as collateral.

He then started sending those CRV tokens in hefty chunks over to the centralized alternate OKEx, prone to promote. After that, he took the brand new USDC he swapped for these CRV tokens to borrow extra CRV and repeat the cycle.

He was principally constructing an enormous brief place on the CRV token. However why brief CRV? Amid the chaos, two theses emerged.

The primary revolved round Eisenberg’s ambitions to liquidate Curve founder Michael Egorov’s large CRV mortgage. In accordance with knowledge from DeFi Llama, Egorov had an enormous $48 million mortgage on Aave that may have been liquidated if the value of CRV dropped beneath $0.29. He did in the end come near being liquidated, however he then added another hefty dose of collateral to evade destruction.

The second thesis that emerged was that Eisenberg was testing the bounds of Aave. With such a big place taken out, even when Eisenberg was ultimately liquidated, the lending platform was nonetheless left with roughly $1.6 million in bad debt (or debt that the system can’t repay).

Egorov didn’t get liquidated, and Aave hasn’t collapsed. However does that imply Eisenberg misplaced? Possibly, possibly not.

He misplaced roughly $10 million primarily based purely on what might be seen on chain through liquidations. However with a lot exercise additionally occurring on centralized exchanges, we’ll by no means actually collect a full image of the bigger scheme he was making an attempt to execute.

What’s extra, he was actively tweeting all through the whole course of, including to the noise and thriller surrounding the occasion.

What about Aave’s dangerous debt?

Shortfalls like Aave’s have been thought of earlier than, and mechanisms are in place to shore up the lending platform.

Aave’s Safety Module, for instance, would use a portion of staked CRV to fill the hole (this chance is why stakers earn cash within the first place—they’re being paid a premium to danger their funds getting used as a backstop). The protocol may additionally flip to its DAO treasury to make the platform complete.

One other proposal within the works proper now could be to make use of funds from Gauntlet, a DeFi-centric danger administration supplier, and the Aave treasury.

After that, extra proposals have been launched by the Aave neighborhood to stop occasions like this week.

One proposal seeks to “briefly freeze” over a dozen tokens on Aave’s V2 and “promote eventual migration to V3.” One other proposal provides one other six token freezes and adjusts the cap on how a lot customers can borrow.

It’ll be as much as the Aave neighborhood to find out how greatest to make the lending large complete once more.

Decrypting DeFi is our DeFi e-newsletter, led by this essay. Subscribers to our emails get to learn the essay earlier than it goes on the positioning. Subscribe right here. 

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