Here’s what happened to the Curve DAO token

Yesterday, the price of the Curve DAO token fell about 23%, reaching one of its lows in the past two years, touching around $0.40. Overnight, however, it began a brief and fierce bull run, quickly reaching around $0.61.

Experts have suggested that the reason for this rebound can be traced back to the Whales who are thought to have implemented a Short Squeeze on the Curve DAO token (CRV).

What is a Short Squeeze and why is it working on the Curve DAO token?

A Short Squeeze occurs when there is a lack of supply and excess demand for a particular security or cryptocurrency due to short sellers having to buy stocks to cover their short positions. It is an unusual condition that triggers a sudden increase in the price of an asset in general. 

For a short squeeze to occur, the tradable security or cryptocurrency must have an unusual degree of short sellers holding positions in it. 

Short squeeze begins when the price sees a sudden jump, defying market expectations. The condition manifests as a significant measure of short sellers randomly deciding to cut their losses and exit their positions. 

A famous example to understand the short squeeze is that of GameStop: in January 2021, a group of traders on Reddit got together to squeeze the shares of video game company GameStop. Hundreds of thousands of retail traders came together to push GameStop’s stock to an all-time high of nearly $500. Prior to the surge, GameStop’s shares had been valued at $17.25.

In the specific case of the CRV token, when the price of Curve DAO fell, the whales borrowed more tokens to sell on AAVE. The whales are now repeatedly buying CRV, to make the price soar, they then went long on CEXs.

Next, they will wait for their AAVE positions to be liquidated, so that the token will bounce even higher and the gains will be higher.

The Curve DAO token (CRV) is first on CoinMarketCap trends

For those who do not know, Curve DAO is a decentralized exchange for stablecoins, which uses an automated market maker (AMM) to manage liquidity. The exchange and its token were launched in January 2020. The project is now synonymous with decentralized finance (DeFi), a phenomenon that has grown the project a great deal, especially in the latter part of 2020.

Curve has also been the promoter of the Decentralized Autonomous Organization (DAO), with CRV as the internal token. 

The man behind this ambitious project is Micheal Egorov, a Russian scientist and founder and CEO of the Curve DAO company. Egorov is also part of other projects, such as the LoanCoin lending network or the decentralized bank. 

Curve’s entire focus is on the project’s ability to trade stablecoins. It has made incredible progress in recent years, bringing excellent results.

Further profitability also comes from their CRV and DAO tokens, given the use of CRV for their market governance. 

The move of many platforms to DeFi, has given a boost to Curve, increasing the stability of the project and also the longevity of durability. 

The number of coins in circulation makes CRV volatile

Curve (CRV) was launched in 2020, along with Curve DAO. Its purpose is to serve as a means of governance, as an incentive structure and commission payment method, along with the long-term earning method for liquidity providers.

The total supply of CRV is 3.03 billion tokens, most of which (62%) are distributed to liquidity providers. The rest is distributed as follows: 30% to shareholders, 3% to employees and 5% to a community reserve. Shareholder and employee allocations have a two-year vesting schedule.

CRV had no premine, and the gradual release of tokens means that about 750 million should be in circulation one year after launch.

The number of CRV held in centralized exchange portfolios this month increased by 70% to a record 148.9. With the count increasing by 46% in the last 24 hours alone. In other words, the number of tokens available for liquidation is really high. So, this phenomenon makes the Curve DAO token very volatile.

Today’s volatility reflects gloomy prospects for CRV, as the increase in the balance of the exchange incentivizes holding the token much less and so does the supply of liquidity to the platform.

Markus Thielen, head of research and strategy at crypto services provider Matrixport, said: 

“While Curve was initially a winner after FTX, the lack of user engagement will now hurt them in the short term.”