What happened? 

Curve is one of the most esteemed DEX in the crypto space, with approximately $1.6 billion of total value locked (TVL). The DEX relies on smart contracts to put together the buyers and the sellers, using automatic market makers and an incentive system to form liquidity pools.
 
On July 30, several Curve liquidity pools were exploited due to a bug in an old version of Vyper compiler, the programming language.
The hacker stole around $62 million worth of crypto. This was not a big hack by crypto standards: Curve is a major-league DEX, and this hack makes up only about 4% of its TVL. Moreover, a portion of the exploit was done by a white hat hacker, who returned around $5.5 million (2,879 ETH). 
 
However, despite its relatively small scale, the hack managed to cause ripples in the wider DeFi space. 

The contagion
 
The price of $CRV, Curve’s native token used for governance and incentivizing liquidity providers, plunged from $0.73 to $0.5 in the two days following the hack. This has put at risk all the traders who used it as collateral within other DeFi protocols.
 
Indeed, as in traditional finance, funds in DeFi are rarely left idle. Several protocols allow using $CRV as collateral for loans, and when its value falls, the borrowers must add more collateral to keep the ratio imposed by the lending platform. If they fail to do so, they risk their $CRV being liquidated when its price falls below a certain threshold. 
 
So far, nothing alarming, but $CRV has a dangerous particularity: it is highly concentrated in the hands of the Curve founder, Michael Egorov. He also appears to be using his coins extensively, locking them as collaterals at several DeFi protocols.
 
More precisely, Mr Egorov has borrowed a total of around $100 million on Aave, Abracadabra, Frax, and Inverse, according to Delphi Digital, a crypto research company. This amount is backed by 427 million $CRV, which represents an astonishing 48% of the coin’s total supply.
 
Now that the $CRV price is declining, all eyes are on these loans’ liquidation thresholds. Thus, if $CRV falls below $0.37, the 305 million $CRV backing the $60 million loan on Aave will be liquidated. Also, it is possible that the liquidation threshold on Frax will go up to $0.52 within four days (at the current pace). This would mark the liquidation of 59 million $CRV, locked as collateral for $15.8 million.
 
If such massive amounts of the cryptoasset were to be liquidated, its price would plummet dramatically, spreading the contagion to the whole space.
 
Understandably, Mr. Egorov is now making effort to avoid liquidations and add more collateral to his loans. In order to do this, he is now selling more of his $CRV. A Nansen researcher noticed a recent series of OTC (over-the-counter) transfers from Egorov’s wallet to those of several famous people in the crypto space, amounting to a total of 54.5 million $CRV, equivalent to $30 million at the current rate of $0.55 (although the OTC price was $0.40). The coins are said to be locked up for 6 months.
 
He has already been observed making repayments to Frax.

The lesson
DeFi certainly lives up to its promise of transparency. Knowing the financial situation of a user in such detail, including their OTC deals and liquidation thresholds, could never be possible in traditional finance. In the crypto world, virtually everyone can look it up on-chain.
 
However, one could argue that this knowledge should have been used much earlier – at the very beginnings of Curve Finance, when the extremely high concentration of its token was already an established fact. Or at the least – when these coins were noticed to be locked as collaterals on lending platforms.
 
The Curve founder selling millions of $CRV with a heavy discount may actually be beneficial to the DeFi space, as it helps to accelerate the token’s redistribution and foster a healthier market.