DeFi Blue-Chip Tokens Hit With Bearish Week Amid Curve Finance Hack

Leading Ethereum-based DeFi tokens have suffered a significant downturn in the last couple of days amid fears that followed last weekend’s Curve Finance hack.

Curve Finance is the second-largest decentralized exchange for stable swaps on Ethereum after Uniswap, with total deposits worth $2.09 billion, per DeFiLlama data.

What Is a Blue Chip NFT?

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The protocol was hacked on July 30, which saw attackers make off with approximately $52 million due to a vulnerability in the Vyper programming language, affecting at least four Curve Finance pools.

Glassnode's DeFi Blue-Chips Index of the top eight Ethereum DeFi tokens by market capitalization dropped 6.7% from its three-month high on July 29, a day before the Curve Finance hack.

The DeFi Pulse Index of the top ten DeFi tokens by market capitalization traded 7.3% lower since last week, according to data from Coingecko.

The biggest losers from the two indices include Curve DAO (CRV), down 20.5% over the week, followed by Compound (COMP) down 18% during the same period, and Synthetix Network (SNX) at negative 17% and Aave (AAVE) at negative 14%.

AAVE holder’s risk due to CRV loans

The Curve Finance hack exposed DeFi to something of contagion risk arising from contracts built using Vyper on other protocols.

Another acute risk to Curve DAO came from liquidating hefty loans taken by Curve’s founder, Michael Egorov. His largest lending position stands on the popular lending protocol Aave.

Egorov’s loan amount last stood at $49.2 million USDT borrowed against 257.4 million CRV tokens worth $148.6 million, per his Ethereum wallet data.

DeFi Contagion? Curve Finance Exploit Ripples Across Industry

Various teams that forked Curve Finance code are now reporting exploits after an attacker discovered a vulnerability in an old compiler in the programming language Vyper. Curve Finance is a decentralized exchange for stable swaps between stablecoins and crypto tokens such as Ethereum and Wrapped Ethereum (WETH). The platform was exploited on Sunday for an estimated $52 million. Beyond the damage done to Curve itself, the hack exposed a critical vulnerability in the wider DeFi ecosystem, specific...

If Egorov's loan were liquidated, it could trigger a massive sell-off of Curve tokens, threatening to drop CRV price below the principal loan amount on Aave.

This put AAVE token holders at risk, as the deficiency between the principal amount and CRV collateral would have been paid by selling AAVE from its Safety Module, as per its design.

While Egorov has improved the health of his debt position and repaid some of his loans after making OTC deals with numerous funds, developers, and power DeFi users, the risks are still bound.

Curve hack catalyzes correction in DeFi tokens

Though Compound was not directly affected by the Curve hack, its governance token appeared to shed gains from the last few weeks.

The COMP token rose by 153% from June 25 to reach a new yearly high of $77.34 on July 17, per Coingecko data, amid bullish hopes around a new DeFi protocol Superstate launched by Compound’s founder, Robert Leshner, and a potential short-squeeze.

In the absence of an announcement around COMP token’s utility in Leshner’s new endeavor and other positive catalysts, COMP gave away some of its gains, last trading at $59.45—up 89% year-to-date.

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Come for The Token, Stay for The Product. Right?

Decrypting DeFi is Decrypt's DeFi email newsletter. (art: Grant Kempster) Launching a token is a delicate task. On the one hand, you’ll thrill your die-hard audience of early adopters, rewarding them for sticking it out for so long. On the other, you invite hungry whales to come and harvest your project for its incentives, often hogging the lion’s share of the tokens being dished out (before flipping them for a profit shortly after). This latter outcome is especially bad if these tokens also ser...

Similarly, Synthetix Network (SNX) surged to a three-month high of $2.99 in July after forming a partnership with crypto venture fund and market maker, Jump Crypto, to improve the protocol’s liquidity.

However, the SNX token gave away its gains following the Curve Finance hack—it is down 18.4% since last week. Nevertheless, SNX is up 10.6% in the last 30 days and 68.7% year-to-date.

In comparison, Maker (MKR) buyers managed to hold on to their impressive gains in July as it increased exposure to real-world assets and the community implemented tokenomics update to increase MKR buybacks. MKR was trading 2.7% higher over the week and 151.6% since the year’s start.

Curve’s competitor decentralized exchange tokens, Uniswap (UNI) and Sushi (SUSHI) were up, respectively, 4.2% and 7.9% over the week. However, Balancer (BAL) fell by 6.2% during the same period.