Curve Finance recently faced a real-world test of its soft liquidation mechanism during a hacking attempt, leading to a 28% drop in the price of its CRV token.
Despite the significant decline in CRV value, Curve Finance’s liquidation process performed as expected.
According to onchain data, founder Michael Egorov encountered substantial liquidation pressures on June 13 as the CRV token price plummeted. Egorov took various actions to manage his debt positions, including multiple liquidations, repayments, and withdrawals on platforms such as Inverse Finance and Curve.fi.
The soft liquidation mechanism is a key component of Curve Finance’s Lending-Liquidating Automate Market Maker Algorithm (LLAMMA). This mechanism ensures that liquidations take place without resulting in “bad debts” that cannot be repaid or liquidated profitably.
The LLAMMA documentation explains that collateral for new loans is distributed across bands within the automated market maker (AMM). However, it also notes that positions in soft-liquidation or de-liquidation may incur losses due to the buying and selling of collateral.
Despite the successful operation of the protective measures, the market reacted strongly to the event, with the CRV price experiencing a sharp 28% decline in the past 24 hours. This development follows previous concerns raised by Cointelegraph about Curve Finance’s underlying systemic risks, particularly related to Egorov’s debt obligations.
In related news, a magazine article questions the classification of “Bitcoin Layer 2s” as true Layer 2 solutions and examines the implications of this misclassification.
Curve Finances soft liquidation successfully implemented resulting in a 28 drop in CRV price