CRV exposure risk throws a curveball at the DeFi ecosystem: Finance Redefined

Welcome to Finance Redefined, your weekly dose of essential decentralized finance (DeFi) insights — a newsletter crafted to bring you the most significant developments from the past week.

The $47 million Curve Finance exploit on July 30 had a domino effect on the DeFi ecosystem, mainly due to the $100 million loan taken out by the Curve founder against the platform’s native Curve DAO (CRV) token. Several lending protocols have rushed in with new governance proposals to minimize CRV exposure risks as the token price fluctuates. On Aug. 3, the native stablecoin of the ecosystem crvUSD depegged due to market conditions.

Being considered the backbone of the DeFi ecosystem, the Curve exploit could trigger a severe crisis.

The Curve crisis also had a negative impact on the price of the DeFi tokens, with a majority trading in the red on the weekly charts.

Curve Finance pools exploited by over $47 million due to reentrancy vulnerability

Several stable pools on Curve Finance using Vyper were exploited on July 30, with losses reaching over $47 million. According to Vyper, its 0.2.15, 0.2.16 and 0.3.0 versions are vulnerable to malfunctioning reentrancy locks.

“The investigation is ongoing but any project relying on these versions should immediately reach out to us,” Vyper wrote on X (formerly Twitter). Based on an analysis of affected contracts by security firm Ancilia, 136 contracts used Vyper 0.2.15 with reentrant protection, 98 used Vyper 0.2.16 and 226 used Vyper 0.3.0.

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CEX price feed prevents Curve price from collapsing amid $100 million vulnerability

The CRV price collapsed on the DeFi market due to the significant draining of several pools; however, it was eventually saved by the centralized exchange price feed. CRV hit $0.086 on decentralized exchanges but traded at $0.60 on centralized exchanges (CEXs), preventing the token’s price from collapsing to zero.

Curve pools use Chainlink’s oracle system, which incorporates several price feeds, including centralized exchanges. If not for the CEX price feed, Curve Finance would have collapsed. This ironic incident drew the attention of Binance CEO Changpeng Zhao, who said that, in the end, it was a CEX price feed that saved the DeFi protocol.

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Curve Finance founder’s $100 million debt could trigger a DeFi implosion: Report

While Curve Finance is still weathering the aftermath of its recent $47 million hack, another issue concerning holders of the DeFi protocol’s token has surfaced on the internet, sparking theories about how a massive dump could potentially happen.

On Aug. 1, crypto research firm Delphi Digital published an X thread detailing the loans taken out by Curve Finance founder Michael Egorov that are backed by 47% of the circulating supply of CRV. According to the research firm, Egorov holds around $100 million in loans across various lending protocols backed by 427.5 million CRV.

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Curve’s crvUSD depegs as market reacts to shock events

Curve Finance’s native stablecoin, crvUSD, briefly depegged on Aug. 3, reacting to an uncertain environment surrounding the protocol after its recent exploit. On the day, the stablecoin fell by as much as 0.35% before regaining its peg to the United States dollar.

Curve’s crvUSD uses a mechanism for maintaining its peg called the PegKeeper algorithm, which manages the interest rate and liquidation ratio based on the stablecoin supply and demand to maintain its value. In other words, it ensures that the crvUSD value is properly backed by collateral while balancing supply and demand.

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DeFi market overview

DeFi’s total market value saw a bearish decline in the past week. Data from Cointelegraph Markets Pro and TradingView shows that DeFi’s top 100 tokens by market capitalization had a bad week, with most tokens trading in the red. The total value locked into DeFi protocols remained below $50 billion.

Thanks for reading our summary of this week’s most impactful DeFi developments. Join us next Friday for more stories, insights and education regarding this dynamically advancing space.