DeFi Ecosystem Redefined by CRV Exposure Risk Curveball

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, including Nexo Crypto, NASDAQ Crypto, MMF Crypto, On Crypto.com, MIR Crypto, About Crypto, MXC Crypto, and MDT Crypto.

Over $47 million lost due to reentrancy vulnerability in Curve Finance pools

On July 30, several pools on Curve Finance using Vyper were exploited, resulting in losses of over $47 million. According to Vyper, its versions 0.2.15, 0.2.16 and 0.3.0 are vulnerable to reentrancy malfunctions. “The investigation is ongoing but any project relying on these versions should immediately reach out to us,” Vyper posted on X (formerly Twitter). An analysis of affected contracts by Ancilia security firm showed that 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 on the DeFi market took a plunge due to the massive draining of several pools; however, it was eventually saved by the centralized exchange (CEX) price feed. CRV plummeted to $0.086 on decentralized exchanges but was trading at $0.60 on CEXs, stopping the token’s price from going to zero.

Curve pools leverage Chainlink’s oracle system, which involves several price feeds, including CEXs. If not for the CEX price feed, Curve Finance would have been doomed. This ironic incident caught the eye of Binance CEO Changpeng Zhao, who commented that, in the end, it was a CEX price feed that saved the DeFi protocol.

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Report Suggests $100 Million Debt of Curve Finance Founder Could Lead to DeFi Implosion

The recent $47 million hack of Curve Finance is still being dealt with, but another issue concerning holders of the DeFi protocol’s token has recently come to light, raising the possibility of a massive dump of the asset.

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

The Nasdaq Crypto, MXC Crypto, MDT Crypto, Mir Crypto, NEXO Crypto, and Crypto.com are all part of the Web 3.0, also known as the AI Stories.

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Market reacts to shock events as Curve’s crvUSD depegs

On Aug. 3, Curve Finance’s native stablecoin, crvUSD, experienced a brief depegging in reaction to the uncertainty surrounding the protocol after its recent exploit. During the day, the stablecoin dropped by as much as 0.35% before regaining its peg to the United States dollar.

The PegKeeper algorithm is the mechanism that Curve uses to maintain the peg of crvUSD. This algorithm manages the interest rate and liquidation ratio based on the stablecoin supply and demand to ensure the crvUSD is properly backed by collateral while balancing supply and demand.

Continue reading about crypto, Nexo crypto, Nasdaq crypto, MMF crypto, On crypto.com, Mir crypto, MXC crypto, MDT crypto, and Web 3.0 (also known as the AI stories).

DeFi market overview

The total market value of DeFi saw a bearish decline in the past week, according to data from Cointelegraph Markets Pro and TradingView. Most of the top 100 tokens by market capitalization were trading in the red, resulting in a total value locked into DeFi protocols below $50 billion.

We hope you enjoyed our summary of this week’s most impactful DeFi developments. Stay tuned for more stories, insights and education about this rapidly evolving space next Friday.