Incentives Rule Everything Around Me: How Curve's Founder Built His Way Out of Liquidation

Curve founder Michael Egorov was able to create a new market for Frax debt and along with several OTC deals, it made all the difference in saving CRV.

Samuel McCulloch
Samuel McCulloch
Aug 1, 2023
Incentives Rule Everything Around Me: How Curve's Founder Built His Way Out of Liquidation

Whew, what a night. Congrats to those who went to bed before 10pm and woke up to markets flying again.

As we reported yesterday, due to the Curve Finance exploit, the CRV/ETH Curve LP was drained, reducing liquidity, and pressuring prices to the downside. In the previous months Curve Founder Michael Egorov had used his massive CRV holdings to borrow tens of millions of stablecoins from lending markets like Aave and Fraxlend. He was able to borrow so much capital as it had been nearly impossible to source enough CRV to short it to his liquidation point.

All that changed when CRV/ETH LP was completely drained.

Suddenly all the sharks could smell blood. Michael’s untouchable CRV position was now the most desired prize in all of crypto. The hunt began to liquidate Michael at any cost.


Millions of dollars piled into CRV shorts crushing the price lower.


Degen’s were filling the onchain orderbooks with dirt cheap prices for CRV starting at .15 cents downwards. Max pain was expected.

Michael’s public wallet was tracked block by block as he rapidly tried to redeploy capital from one lending market to another to optimize his position. But throughout the day, his position health kept deteriorating. Michael needed a lifeline desperately.

His biggest threat was Fraxlend, where he had originally borrowed $25m FRAX against his position. Yesterday he had paid it down to $17m, but price action spooked lenders and the pools utilization maxed out as lenders tried to squeeze Michael towards liquidation at .40 cents. Around midday, based on his on-chain holdings, it didn’t look like Michael had much more room to maneuver. He was no longer able to borrow from Aave to pay down his Fraxlend debt, and he didn’t seem interested in selling CRV to get ETH or stables.

In production, the interest rate changes every 12 hours.

Due to the high utilization, Michael’s interest rate on Fraxlend started to rapidly increase. By design, the Fraxlend interest rate doubles every 12 hours at max utilization. With it hovering at 99% for 2 consecutive days, his rates skyrocketed from 10% to 150%.

Instead of panicking, Michael did what he did best. He started to build.

At 5:51 pm EST, he dropped a short message with a link. It was a new crvUSD/fFRAX pair with an eye watering 100k CRV rewards funneling through it.

fFRAX is the receipt token issued by Fraxlend when FRAX is deposited by lenders into the contract. Its a a record of how much interest lenders have earned. It’s also a quasi stablecoin, as it represents a secondary claim on debt. Michael knew this and so he spun up his own new pool on Curve and incentivized it with his own CRV stash.

The idea was simple. Michael needed a way to incentivize new deposits into the CRV/FRAX Fraxlend pair. With his new Curve LP, he would create demand for lenders to deposit and then add liquidity on Curve. The high rewards would bring in more and more capital to the Fraxlend pair and over time reduce the utilization rate and his skyrocketing interest rates.

While some were skeptical at first, in just one day the Curve pool attracted $6m in deposits and is paying 50% APR in CRV (wow). A few hours after depositing this, capital started to flood into the CRV/ETH Fraxlend pair.

Notably, Sam Kazemian posted a TG update from one of their private monitoring tools for Fraxlend showing Sifu depositing 700k FRAX.

While it wasn’t a panacea and utilization does remain elevated, it bought Michael enough time to construct and OTC deal to sell his CRV holdings at .40 cents. Justin Sun, C2tP and DCFGod were just a few of the investors who bought millions of CRV at a discounted rate.

Michael used the raised funds to increase his health factor by paying down his debts on Aave and Fraxlend. His new liquidation level is in the low $.30s.

The first of its kind crvUSD pool will persist and might be a good model for other high yielding fFRAX tokens on Fraxlend. There’s no reason that this secondary debt market can’t be liquidity for crvUSD and also earn CRV rewards. It’s a win-win for everyone.

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