Curve’s (CRV) price hits a 1-year low amid looming liquidation threat

CRV, the governance token of Curve DAO, experienced a decrease of 12% on June 15 after news of risky loans taken out by its creator, Michael Egorov, on Aave was revealed. On June 15, the token’s lowest trading level against Ether (ETH) was 0.00035010 ETH.

According to LookOnChain, an on-chain analytics source, Egorov has placed 431 million CRV (valued at approximately $246 million) on various decentralized loan protocols and taken out $101.5 million in stablecoins from multiple platforms. This amounts to Egorov’s deposits representing 50.5% of the circulating CRV supply.

Data from DeFiLlama indicates that if the value of CRV drops below $0.37, there is a potential for a liquidation of $107 million on Aave. Should a liquidation occur, the CRV tokens will be stored in Aave’s smart contracts until a purchaser is found to settle and liquidate the collateral. To avert a disastrous outcome, a proposal has been made to freeze Egorov’s loans on Aave and stop any further CRV loans.

Despite the large loans taken out by Egorov causing a great strain on the token, there has been a notable increase in negative bets on CRV, which could lead to a swift increase in value.

Is a CRV short squeeze in the making?

Following the disclosure of Egorov’s loans, the open interest volume for CRV perpetual swap contracts has risen from $35.5 million to $46.3 million.

The Coinglass data shows that the funding rate for CRV token on centralized derivatives exchanges like Binance and OKX has decreased to a historic low of 81% annually. This negative funding rate implies that the majority of these new traders are expecting further price depreciation.

As the number of short positions increases, it opens up the possibility for buyers to target those with stop losses. This is referred to as a short squeeze. It takes place when the price of an asset moves rapidly in the opposite direction of those who are short, causing them to close their positions or cover their positions quickly.

The CRV/USD pair may be able to find a bottom around the 2022 low of between $0.53 and $0.40. If a rapid increase in price happens due to a short-squeeze, then the exchange rate could reach the 50-day moving average of $0.82.

Should the support level break down, the sell-off could reach the 2021 low of $0.32. As of writing, CRV is trading at approximately $0.59.

The CRV/ETH token pair appears to be quite weak, as it has recently hit a record low. The pair appears to be in a downward trend, suggesting that it may bounce back from the 0.0032 ETH mark.

Despite the short-term fluctuations, the overall trend is still negative, with ETH being particularly bearish below the 0.0042 ETH support level from its 2022 lows, forming a descending channel.

CRV’s long-term projection looks grim

The revenue statistics of Curve are not appealing to buyers either. Following the FTX crash in November 2022, Curve’s fees saw a drastic decrease, leading to a decrease in CRV’s yield over time. 50% of Curve’s revenue from trading fees is distributed among CRV stakers.

In March 2023, there was a brief increase in activity on the decentralized exchange, yet fees have stayed close to two-year lows in recent months.

CRV token holders can gain value through voting and directing rewards to certain pools, which earns them bribes. Just like trading fees, these bribes have been close to their lowest levels in the past year.

DeFi volumes have seen a 444% increase following the legal proceedings involving Binance and Coinbase, as reported by Finance Redefined.

Kaiko, a crypto research firm, discovered that Curve’s liquidity has decreased substantially in the past few months, making CRV vulnerable to drastic price fluctuations. They found that CRV’s liquidity has diminished significantly in the span of a year, to the point where a $800,000 order can cause a 2% shift in prices.

There is much doubt concerning CRV as it is exposed to the potential of liquidation from a $264 million DeFi loan collateralized by CRV on Aave.

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