Aave proposal to freeze alleged Curve founder’s loans draws controversy

A proposal, put forth on June 12th in African American Vernacular English (AAVE) with the intention of stopping a particular account from accumulating more debt, has caused a stir, with some participants asserting that the proposal is in violation of the principle of censorship-resistance or “neutrality” in decentralized finance, otherwise known as DeFi.

Some participants think that the account is held by Michael Egorov, the creator of Curve (CRV). Cointelegraph was unable to prove who the owner of the account is.

According to Gauntlet, the creator of the proposal, the Ethereum address 0x7a16ff8270133f063aab6c9977183d9e72835428 has borrowed US Dollar Coin (USDC) and Tether (USDT) worth $67.7 million through the AAVE V2 protocol, using $185 million of Curve tokens as collateral.

Gauntlet expressed concerns that the account’s debt may continue to grow, which could lead to liquidation if there is a sudden drop in the value of Curve. What makes the situation worse in Gauntlet’s opinion is the decreased liquidity of CRV in recent months. This may cause significant losses if the account is liquidated, as there may not be enough buyers in the marketplace to absorb such a large amount of tokens.

Gauntlet suggested that this could result in millions of dollars in bad debt for AAVE.

DecentMuse, an AAVE user, suggested that the wallet address may be owned by Curve’s founder, Egorov. According to DecentMuse, the loan could be a way for the founder to make money from his work with Curve. However, Cointelegraph was unable to verify the identity of the address holder.

In the proposal, Gauntlet proposed that the AAVE decentralized autonomous organization (AAVE DAO) implement a patch to halt any further utilization of CRV as collateral for loans. This would enable the account to maintain its current loan position, but would also prevent it from incurring any additional debt.

A bug in Aave v2 on Polygon has caused some assets to become trapped in contracts.

Various forum members expressed their approval of the proposal as well as their disapproval of the account’s accumulation of so much debt. For example, the internet alias “AAVEBull” allegedly argued that the account must not have any plans to pay off its obligations, as it has continued to increase its holdings even as the token’s value has decreased.

In response, those who opposed the proposition defended the account. For instance, pray.eth claimed that the account holder may think that CRV tokens are drastically underestimated; resulting in the conclusion that as the cost drops, it is reasonable to raise their usage as collateral.

Marc Zeller, the founder of the Aave-Chan Initiative (ACI) and a frequent forum participant, commented on the proposal for the AAVE DAO. He remarked that it should be mindful not to contravene “the central ethos of DeFi, which is impartiality.” Zeller went on to say, “What users do with their funds or their purpose is not our main focus. Users should be at liberty to use the protocol as they choose.”

The proposal is currently listed as a “recommendation” as of June 16, and has not yet been converted into a formal AAVE Improvement Proposal (AIP) that can be voted on by the DAO. The author has indicated that the next step is to make it a formal AIP.

Participants in the blockchain space remain embroiled in discussions about the boundaries of censorship-resistance. In January, numerous Bitcoin users voiced their dissatisfaction with the high fees imposed as a result of other users generating and trading Ordinals. Some desired to prohibit Ordinals, while others considered such a prohibition to be censorship.

On April 11, Tether blocked an address that had withdrawn $25 million from EVM front-running bots. Jaynti Kanani, one of the co-founders of Polygon, stated that the blacklisting created “a bad precedent” that could lead to further censoring of transactions, while ZachXBT, an on-chain investigator, suggested that Tether may have been compelled to take such action based on a court order.

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