The actions of Curve founder Michael Egorov serve as a warning to everyone and also prove that DeFi is not much different from traditional finance.

By Daniel Kuhn

Translated by Block unicorn

Yesterday, DeFi did not truly "die." No protocols collapsed or tokens went to zero—although that was a distinct possibility. The interconnected economy of lending platforms, exchanges, and trading tools without intermediaries continues to operate at a technical level.

But the spirit driving DeFi forward, the decentralization of financial power to provide users with easy access to a variety of basic and complex financial products, has vanished. This was not caused by the U.S. Securities and Exchange Commission (SEC), but by DeFi itself.

On Monday, following a series of attacks on several DeFi platforms, including the systemically important Curve Finance, Curve's founder Michael Egorov found himself in an unstable position, with hundreds of millions of dollars of personal loans at risk of liquidation.

Several months ago, Michael Egorov used a significant amount of leverage on CRV tokens, which he received as the founder of Curve, one of the most widely used decentralized exchanges. In one loan, he put down approximately 34% of the total CRV token supply on the open lending protocol Aave to borrow $63 million worth of stablecoins. Additionally, he borrowed as much as 460 million CRV tokens—47% of the total supply—in exchange for $110 million.

Last Sunday, hackers attacked more than three of Curve's trading pools, increasing the pressure on collateralized loans. If the CRV token fell below a certain price (around $0.35), it would trigger the automatic sale of Michael Egorov's loan collateral. This could set off a downward spiral, causing the CRV price to continue falling, forcing other loans into liquidation and further driving down the CRV.

This is known as a "death spiral," where CRV is used as collateral in the DeFi ecosystem, and its impact could paralyze the entire DeFi industry.

However, due to behind-the-scenes trades with wealthy traders like TRON founder Justin Sun, Michael Egorov managed to avert this. He successfully repaid part of the debt and supported the price of CRV (currently around $0.60).

Others are pushing for intervention by platform founders like Aave's CEO Stani Kulechov—not by disabling the protocol, but possibly using Aave's insurance fund or activating a safety module in extreme cases (which actual stakers in Aave pay to participate in).

Who is to blame?

This is not the first time a DeFi giant like Michael Egorov has been bailed out, nor is it the first time the cryptocurrency industry has suffered losses due to poor judgment.

More importantly, it can be said that Michael Egorov did nothing wrong: he followed preset rules of lending platforms and executed tax-saving techniques popular throughout the tech industry in the cryptocurrency space. If "crypto billionaires" like Peter Thiel can apply for loans from banks by pledging the equity they accumulated in startups like Facebook, why can't cryptocurrency founders do the same? This is the nature of permissionless finance.

However, considering that DeFi was on the brink of collapse, some serious questions are worth raising. Why was Egorov allowed to accumulate nearly half of the total CRV supply—completely contrary to DeFi's purported goal of equality?

Why did no one intervene earlier? Why was such a critical protocol allowed to be threatened? Why didn't lending protocols like Aave or Fraxlend/Frax (where Michael Egorov's loans were smaller but riskier) set limits on the amount or proportion of tokens people could borrow?

Perhaps most importantly, as my colleague Shaurya Malwa suggested, why did "wealthy developers" wait until the last minute to take action? This is no secret. Research team Gauntlet issued warning signals about Michael Egorov's highly leveraged financial position as early as January, although their formal proposal to freeze CRV on Aave V2 did not pass. Venture capitalists like ParaFi, Framework, and 1kx even sued Egorov earlier this year, not because of his risky loans, but because they believed they should have a larger share of Curve equity as early investors.

The simple answer is: this is a problem with DeFi. Despite being based on a series of technological innovations, open-source, and interoperable protocols, it faces fundamental issues similar to the traditional finance industry. Greed prevails, and hypocrisy has become the norm. As Paul Ennis, assistant professor at University College Dublin, said: the idea of DeFi is not to build democratically, but simply "as long as it works."

While Michael Egorov's situation did not lead to the end of DeFi, it is more than just a "wound" in this field. It indicates that the soul of DeFi has died over the years.

This article could also be written as a heroic narrative of Michael Egorov's intervention and the collective action of industry participants (who are not always naturally aligned) to save a very important platform.

Yesterday, Michael Egorov made some trading strategies to make up for the bad debts—he repaid a $5.13 million FRAX stablecoin loan with money he found almost under the couch cushions. Michael Egorov did not respond to requests for comment on this, but he clearly understood the severity of the situation, and in many ways, I'm glad he made it through.

Justin Sun withdrew $2 million USDT from his position on Aave to purchase around $2.9 million worth of over-the-counter CRV tokens, which could easily become worthless—this is a selfless act, should he be commended for it?

After all, His Excellency Sun, whenever there is an industry crisis, always steps forward to "save the crisis." But this is not truly a rescue if DeFi was once truly different, it is now controlled by a small group with massive capital. If it was truly revolutionary before, it is now almost useless for ordinary cryptocurrency holders, who often cannot make money through liquidity mining and are typically consumed by trading fees and temporarily incomprehensible impermanent losses.

There is a real trend in cryptocurrency media and cryptocurrency Twitter, where every industry problem is discussed as just another chaotic moment. We have been so inundated with disaster information online that we cannot even comprehend whether the loss of $70 million is real financial pain. It is not for me, but look at how much Caroline Ellison hates it (CEO of Alameda and also SBF's girlfriend).

It makes sense to take an indifferent attitude towards perennial crime and disaster, because cryptocurrency is actually fake internet money, and giving them any meaning beyond that is itself a mistake.

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