Gauntlet advises Aave to freeze CRV tokens tied to Curve Finance founder

Gauntlet, a project focused on DeFi risk management, issued an advisory to the governance body of lending platform Aave, recommending the freezing of Curve DAO Tokens associated with a loan position linked to Curve Finance founder Michael Egorov.

Gauntlet serves as a contributor to Aave, focusing on strengthening the security of the platform.

Gauntlet said it examined the risk profile of the wallet in question, which heavily relies on curve tokens as collateral. The account, said to be connected to Curve Finance founder Michael Egorov, has borrowed approximately $63 million in USDT  against collateral of 288 million ($180 million) in CRV, per on-chain data.

Egorov’s wallet recently deposited $24 million in CRV collateral to Aave as the token’s price decreased in order to prevent any risk of loan liquidation and maintain a healthy amount of collateral. The action is noteworthy due to the immense scale of the collateral he controls.

The 288 million CRV tokens account for more than 30% of the total circulating supply of CRV.

Gauntlet wants to mitigate bad debt risk

Gauntlet suggested that by freezing CRV, Aave can incentivize the account holder to either reduce borrowing or diversify collateral forms.

“Given the account is actively managed and frequently maintains its health, freezing CRV will incentivize the account to reduce its borrow or add other forms of collateral,” Gauntlet stated.

The goal of recommending the freezing of CRV from the mentioned loan was to prevent Aave from accruing bad debt due to the declining liquidity of these tokens on exchanges. Specifically, there is  concern over the sharp decrease in the liquidity of the CRV token, which has plunged by 50% both on-chain and globally over the last few months, Gauntlet said.

Despite the account maintaining a health factor of 1.6, indicating no immediate bad debt risk to Aave, Gauntlet implied there can be potential future risks. It stressed that if the account continues to use CRV as collateral, it could pose future risks, especially considering the recent reduction in CRV liquidity. 

Curve Finance didn’t immediately respond to a request for comment. 

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