Curves (CRV) price hits 1-year low amid liquidation threat

Curve DAO’s governance token CRV plunged 12% on June 15 after reports surfaced of risky loans taken by its founder Michael Egorov on Aave. The token recorded its lowest trading level on June 15 at 0.00035010 ETH against Ether (ETH).

According to on-chain analytics outlet lookonchain, Egorov deposited 431 million CRV (worth approximately $246 million) across multiple decentralized lending protocols and borrowed $101.5M of stablecoins across multiple platforms. The amount deposited by Egorov is 50.5% of the circulating supply of CRV.

DeFiLlama data shows that CRV faces the risk of liquidating $107 million if the value of Aave drops below $0.37. Once a liquidation is initiated, CRV tokens will remain locked in Aave’s smart contracts until an interested buyer settles and liquidates the collateral. A motion has been made to freeze Egorov’s debts to Aave and prevent further CRV debts to avoid a catastrophic situation.

While the size of Egorov’s loan puts the coin under tremendous pressure, downside bets on CRV have increased significantly, providing fuel for a potential bullish move to the upside.

Is the CRV becoming a short squeeze?

Open interest volume for the CRV perpetual swap contracts increased from $35.5 million to $46.3 million following the disclosure of Egorov’s loans.

The funding rate for the CRV token on centralized derivatives exchanges such as Binance and OKEx has dropped to an all-time low of 81% per annum. coin Figures. The negative funding rate suggests that most of these new traders are betting on additional price declines.

As the short side gets crowded, it creates an opportunity for buyers to hunt down their stop losses. The phenomenon is known as the short squeeze. This happens when an asset’s price moves quickly in the opposite direction of short players as they rush to protect their positions or buy assets to close out their positions.

Technically, the CRV/USD pair could find support near the 2022 lows between $0.53 and $0.40. Given that a bullish recovery from the short-squeeze is possible, the price could tag the 50-day moving average at $0.82.

On the downside, a breakdown of this support could extend the selloff towards the 2021 low near $0.32. CRV was last trading at around $0.59 at the time of publication.

The CRV/ETH coin pair is looking particularly vulnerable as the pair made an all-time low. The pair seems to be following a descending pattern, indicating the possibility of a rally from the 0.0032 ETH level.

However, the longer-term trend remains negative, while engulfed in a descending channel, with the ETH market structure looking particularly bearish from the 2022 low below the 0.0042 ETH support level.

CRV’s Long-Term Projection Looks Grim

Curve’s revenue figures are also not favorable to buyers. After the collapse of FTX in November 2022, platform fees dropped significantly, reducing the CRV yield over time. CRV stackers are paid 50% of Curve’s revenue from trading fees.

While the decentralized exchange saw a temporary surge in activity in March 2023, fees have remained near two-year lows in recent months.

Another way CRV token holders earn value is through bribes earned from voting to direct rewards towards specific pools. Like trading fees, kickback earnings have also remained at a one-year low.

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Curve’s liquidity has declined significantly in recent months, making CRV vulnerable to violent price swings. crypto research firm caco found CRV liquidity declined significantly that year, to the extent that an $800,000 order could push prices up by 2%.

There is a lot of uncertainty surrounding CRV as it faces liquidation risk from a $264 million CRV-collateralized DeFi loan on Aave. However, the chances of a short-term rally are rising as futures traders crowd the short side. CRV’s lack of market liquidity further increases the risk for traders as the token is exposed to high volatility.