The Curve Finance protocol continues to grapple with lingering systemic risks, as highlighted in a report dated January 8 by a pseudonymous crypto investment analyst and DeFi Made Here contributor known as X. The protocol is anticipated to undergo another stress test in February, following an impending release of a substantial volume of Curve (CRV) tokens into the market. The report suggests that this surge in token availability could echo a situation reminiscent of August, where the CRV token faced a potential collapse in its market value. It is essential to note, however, that DeFi Made Here emphasizes that this outcome remains a mere possibility.

DeFi Made Here, identified as an analyst affiliated with crypto investment fund Alphabeth Capital and a consultant for Web3 developer Good Entry Labs, draws attention to the founder of Curve Finance, Michael Egorov. As of August 1, Egorov was reported to be in debt to various decentralized finance (DeFi) protocols, owing a staggering $100 million. This debt was collateralized by CRV tokens, posing a perceived risk to both the Curve protocol and the broader DeFi ecosystem. Despite concerns, when Curve was exploited for $62 million in August, Egorov managed to repay a portion of his debts, seemingly stabilizing the protocol. At the time of the exploit, the CRV token was valued at around $0.63; it has since experienced a decline to $0.55, constituting a 12.7% decrease, according to CoinMarketCap data.

DeFi Made Here's report suggests that the apparent calm in the market might be masking latent weaknesses within the Curve protocol. The analyst goes so far as to assert that "$CRV is a ticking bomb," emphasizing that the ecosystem is under the influence of "questionable people/entities." Egorov's ability to service his monthly-growing debt of $1.7 million is becoming increasingly challenging, according to the report.

The report claims that Egorov was on the brink of liquidation in August, realizing that he couldn't fulfill his public promise to repay debts if necessary. To address this, Egorov allegedly sold some CRV tokens to investors via an over-the-counter (OTC) trade, raising cash to settle his debts. Notably, this strategy hinged on an agreement with investors not to sell OTC-acquired CRV before February 2024. The report indicates that 231 million $CRV were sold for $92 million at a price of $0.4 under this agreement, involving market makers Wintermute and DW Labs, Tron network developer Justin Sun, Web3 developer Jeffrey Huang, and other crypto investors.

Despite Egorov's successful debt repayment, the report suggests that he acquired $75 million in new loans when the Silo Llama protocol launched in October. This protocol utilizes Curve's stablecoin, crvUSD, as collateral, with a substantial portion of the funds borrowed from it. DeFi Made Here claims that Michael Patryn (known as "0xSifu"), a significant liquidity provider for these loans, is also shorting CRV and may withdraw liquidity from the pool and engage in further CRV shorting when the OTC tokens become tradable in February.

DeFi Made Here expresses concerns about potential crises for the Curve protocol, triggered by fears of Egorov's loan liquidations and potential cascading effects throughout the ecosystem. The report asserts that the protocol will face another impending stress test when OTCed CRV becomes liquid, emphasizing the systemic risk posed by the founder's debt to the health of the Curve ecosystem.

However, DeFi Made Here underscores that the aforementioned scenario is speculative, and Patryn could potentially act as a "good actor." In such a scenario, he would repay his CRV debt, continue providing liquidity for Egorov, and avoid actions that might mirror OTC buyers. The analyst remains hopeful that optimistic developments will unfold, and the design limitations of Curve and CRV will allow the ecosystem to endure potential upcoming events.

As of now, Curve stands as the seventeenth largest DeFi protocol, with over $1.6 billion worth of crypto assets locked within its contracts, according to data from blockchain analytics platform DeFiLlama.