The trader who exploited Mango Market failed to do the same on Aave. But he did prove a point, and left Aave with $1.6 million in bad debt.

Decrypting DeFi is Decrypt's DeFi email newsletter. (art: Grant Kempster)

The most interesting story in DeFi this week was the return of the “highly profitable trader” Avi Eisenberg.

You might remember that Eisenberg attacked Solana-based Mango Markets last month, making off with more than $100 million. This week, he took on a much bigger project: The $3.64 billion crypto lending platform Aave.

And like with his Mango attack, Eisenberg simply worked within the parameters of the project’s code. There was no fraud, hacks, backdoors, or tax loopholes.

Although he ultimately failed this time, it served up another entertaining chapter for on-chain crypto sleuths. Here’s how it went down.

Over the course of ten days beginning on November 14, Eisenberg amassed a loan on Aave for 92 million in CRV, Curve’s governance token (roughly $39 million at the time), using $50 million in the stablecoin USDC as collateral.

He then began sending those CRV tokens in hefty chunks over to the centralized exchange OKEx, likely to sell. After that, he took the new USDC he swapped for those CRV tokens to borrow more CRV and repeat the cycle.

He was basically building a giant short position on the CRV token. But why short CRV? Amid the chaos, two theses emerged.

The first revolved around Eisenberg’s ambitions to liquidate Curve founder Michael Egorov’s massive CRV loan. According to data from DeFi Llama, Egorov had a massive $48 million loan on Aave that would have been liquidated if the price of CRV dropped below $0.29. He did ultimately come close to being liquidated, but he then added another hefty dose of collateral to evade destruction.

The second thesis that emerged was that Eisenberg was testing the limits of Aave. With such a large position taken out, even if Eisenberg was eventually liquidated, the lending platform was still left with roughly $1.6 million in bad debt (or debt that the system cannot pay off).

Egorov didn’t get liquidated, and Aave hasn’t collapsed. But does that mean Eisenberg lost? Maybe, maybe not.

He lost roughly $10 million based purely on what can be seen on chain via liquidations. But with so much activity also occurring on centralized exchanges, we’ll never really gather a full picture of the larger scheme he was attempting to execute.

What’s more, he was actively tweeting throughout the entire process, adding to the noise and mystery surrounding the event.

What about Aave's bad debt?

Shortfalls like Aave’s have been considered before, and mechanisms are in place to shore up the lending platform.

Aave's Safety Module, for example, would use a portion of staked CRV to fill the gap (this possibility is why stakers earn money in the first place—they’re being paid a premium to risk their funds getting used as a backstop). The protocol could also turn to its DAO treasury to make the platform whole.

Another proposal in the works right now is to use funds from Gauntlet, a DeFi-centric risk management provider, and the Aave treasury.

After that, additional proposals have been introduced by the Aave community to prevent events like this week.

One proposal seeks to “temporarily freeze” over a dozen tokens on Aave’s V2 and “promote eventual migration to V3.” Another proposal adds another six token freezes and adjusts the cap on how much users can borrow.

It’ll be up to the Aave community to determine how best to make the lending giant whole again.

Decrypting DeFi is our DeFi newsletter, led by this essay. Subscribers to our emails get to read the essay before it goes on the site. Subscribe here. 

Stay on top of crypto news, get daily updates in your inbox.

TECH NEWS RELATED

8 Fixes: Microsoft Windows Security Not Opening

Your PC will be protected from malware and viruses by Windows Security App, which also comes with Windows Defender Service. It can experience issues, like Windows Security Not Opening, much like other Windows applications. When you try to open Windows Security, it could occasionally display odd errors. The Windows Security ...

View more: 8 Fixes: Microsoft Windows Security Not Opening

9 Best Ways To Retrieve A Downloaded Movie On Your Laptop

Watching movies online can be a hassle; Especially when there is a lot of buffering. This is one of the biggest reasons for people to download their movies and watch them offline. However, I found this specific query in a forum where people were asking to recover a downloaded movie ...

View more: 9 Best Ways To Retrieve A Downloaded Movie On Your Laptop

How To Snip Screen On Your Laptop?

Taking a screenshot is not a complicated process. All of us are familiar with at least one way to do it. However, there are several ways to capture your screen for a frame. We made this article to show you all the different ways you can grab your screens. If ...

View more: How To Snip Screen On Your Laptop?

How To Connect AirPods To A Laptop?

The Apple AirPods are, undoubtedly, some of the best earpieces available on the electronics market. With three generations of different AirPods models, these sleek, ivory earphones are quite popular. Apart from the appearance and quality, AirPods are known for being versatile. Irrespective of what the host device is, AirPods can ...

View more: How To Connect AirPods To A Laptop?

Get $8 off flexible stand that mounts your MagSafe iPhone anywhere

Need to stick your iPhone in an unusual place? No problem. Photo: SwitchEasy Some iPhone MagSafe stands are ideal for use at your desk or on your bedside table. Others are car mounts. But what if one mount could go almost anywhere and let you view your handset at ...

View more: Get $8 off flexible stand that mounts your MagSafe iPhone anywhere

7 Best Ways To Fix DistributedCOM Error In Windows

If you open the Event Viewer utility often, you may notice a DistributedCOM Error on Windows. Let’s know what this DistributedCOM Error Windows error is, how it’s caused, and how you can fix it. Contents show 1 What Is the DistributedCOM Error Windows 10 and 11? 2 What is the ...

View more: 7 Best Ways To Fix DistributedCOM Error In Windows

12 Easy Fixes For Webcam Not Working In Windows

Cameras are becoming quite common for PCs. We use meetings on Zoom, Microsoft Teams, Skype, and other options. The operating system might not be at fault if your camera isn’t working. You can use the given solutions to solve the Webcam Not Working Windows issue quickly. We have covered ...

View more: 12 Easy Fixes For Webcam Not Working In Windows

Windows 10 Sound Not Working: 18 Quick And Easy Methods

Is  Windows 10 Sound Not Working on your PC? This is a common issue faced by many Windows users.  If you are one among them, you are in the right place. This article gives you 11 solutions to fix the no-sound issues in Windows 10.  Contents show 1 Reasons For ...

View more: Windows 10 Sound Not Working: 18 Quick And Easy Methods

How Can You See If Someone Is Not Following You On Facebook: 2 Easy Methods

How To Fix This Update Is Not Applicable To Your Computer Error: 11 Quick Fixes

Windows Dual Boot Menu Not Showing: 6 Easy Ways To Fix

12 Best Fixes: Windows 10 Start Menu Search Not Working

Windows Encryption Not Working? 6 Best Ways To Fix

‘Budget’ MacBook Air workstation doesn’t look cheap [Setups]

Windows Update Error 0x80073701: 9 Best Ways To Fix

Best Ways To Fix Slow Internet During VPN On Windows 11

Best free sports streaming apps in 2023

Today in Apple history: Sequel to ‘1984’ Mac ad bombs hard

6 Solutions To Fix Wmpnetwk High CPU Usage In Windows

Saddle up for some solitaire with Pocket Card Jockey: Ride On!

OTHER TECH NEWS

Top Car News Car News