Controversy Arises Over AAVE Proposal to Halt Debt Accumulation by Alleged Curve Founder
June 12 marked a pivotal moment in the world of decentralized finance (DeFi) as an AAVE proposal aimed at halting a particular account from accumulating more debt sparked a heated debate among participants. The contentious issue revolves around the principle of censorship-resistance and neutrality in DeFi, leaving the community divided on the appropriate course of action.
At the center of the controversy is an account allegedly owned by Michael Egorov, the founder of Curve (CRV), a prominent financial modeling platform. The proposal, put forth by Gauntlet, a financial modeling platform itself, points to Ethereum address 0x7a16ff8270133f063aab6c9977183d9e72835428, which has reportedly amassed $67.7 million worth of debt in US Dollar Coin (USDC) and Tether (USDT) through the AAVE V2 protocol. The collateral for this debt consists of $185 million worth of Curve tokens.
The primary concern raised by Gauntlet is the possibility of the account continuing to accumulate debt, thereby exposing it to significant risks. Gauntlet fears that if there were to be a sudden fall in the price of Curve, the account might face liquidation. Compounding the issue, Gauntlet highlights the decline in liquidity that Curve has experienced in recent months. This lack of liquidity could result in slippage during liquidation, making it challenging to find buyers for such a substantial amount of CRV tokens.
im looking forward to see which defi founder can buy a bigger housing estate (combining his 2 units its 5663 sqm / ~61,000 sqft) than michael but tbh since that segment has already generationally peaked, he might get to hold the world record on that forever pic.twitter.com/oKZJNIT3Qd
— 찌 G 跻 じ MBA, CFA, FRM, CFP, NGMI, HFSP, HENTAI 🛡️ (@DegenSpartan) June 12, 2023
In Gauntlet’s assessment, this situation could potentially lead to millions of dollars in bad debt for AAVE. Adding fuel to the fire, a user named DecentMuse claimed that the wallet address in question “is tagged as belonging to the founder of Curve,” strongly implying that it belongs to Michael Egorov himself. DecentMuse further suggests that the loan might be a means for Egorov to profit from his entrepreneurial activities on behalf of Curve.
To address the situation, Gauntlet proposed that the AAVE decentralized autonomous organization (AAVE DAO) implement a patch to freeze any further usage of CRV as collateral for loans. This approach would allow the account to maintain its current loan position while preventing it from accumulating additional debt.
The proposal has generated intense discussions within the DeFi community, with proponents of censorship-resistance and neutrality voicing concerns over potential infringements on these core principles. Critics argue that implementing the proposed freeze would undermine the very essence of DeFi and set a dangerous precedent. They believe that the decentralized nature of DeFi should be preserved, allowing individuals to engage with protocols freely, regardless of their identities or affiliations.
As the debate rages on, the AAVE community must carefully weigh the potential risks and benefits of the proposed solution. Balancing the need to protect against significant losses for the protocol with the ideals of decentralization and censorship-resistance presents a formidable challenge. Ultimately, the decision made by AAVE DAO will shape the narrative of DeFi governance and its commitment to upholding its core principles in the face of unforeseen circumstances.
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