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Breaking News: Coinbase Confirms DOJ Investigation Following Major Security Incident

Aave Price Recovers Back To $57, But Threat Of New Attack Looms Over Protocol

Reynaldo Marquez
Reynaldo Marquez
1 year ago
4 mins read
AAVE

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The Ethereum-based decentralized finance (DeFi) protocol Aave suffered an attack led by Avraham Eisenberg. The controversial individual was behind a sophisticated run against Mango Markets. The run has been called an attack by some and a clever strategy by others. 

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Aave (AAVE) trades at $57 with a 7% and 36% loss in the last 24 hours and the previous week, respectively. Curve Finance’s native token CRV was also part of the attack. This token has seen significant selling pressure in the short term but has been trending to the upside over today’s trading session. 

Aave AAVEUSDT
AAVE’s price moving sideways after a downside trend on the daily chart. Source: AAVEUSDT Tradingview

Orchestrating An Attack On Aave, First Attempt?

Rudy Kadoch, founder of the portfolio management project Nested, summarized yesterday’s event and the “Bad Debt” attack on Aave. According to this report, Eisenberg borrowed $83 million of CRV and used $50 million of stablecoin USDC as collateral on the decentralized finance platform. 

Eisenberg published the thesis that supported this strategy in October 2022 via his Twitter account. It was public, and his objectives were perfectly outlined: to leverage his initial capital to influence the price of an illiquid token, such as CRV or Ravencoin (RVN), in hopes of creating “bad debt,” an excess liability assumed by the protocol. 

Check out recent activity in the @CurveFinance $CRV pools on @AaveAave V2!

Over the past couple of days, the $CRV pools on Aave have seen a significant increase in both borrow rate and volume, likely to go short on $CRV. 👇 pic.twitter.com/Hx5Bt42Ks6

— Messari (@MessariCrypto) November 22, 2022 

To pay off this debt, Aave would trigger an auction mechanism that involves selling AAVE on the spot market. By taking a short position on this token, Eisenberg would benefit. 

I’ve been advised aave is perfectly safe so here’s the potential trading strategy. Not financial or legal advice, but if you do make 9 figures on this feel free to send a tip

Note that starting with more initial capital increases success odds and profit percentage pic.twitter.com/HKAF7Y5ogM

— Avraham Eisenberg (@avi_eisen) October 19, 2022 

By prompting the price of the underlying collateral, the Aave borrower can double or increase its price by five-fold “at least.” This attack was unsuccessful, as Kadoch noted, due to a lack of capital. The actor was trying to liquidate a CRV whale to create a bad debt. 

However, as the attack was being carried out, the team behind Curve Finance released the whitepaper for a stablecoin, crvUSD. This announcement supported the price of the token and shifted the trend. Kadoch noted: 

– $sdCRV, $cvxCRV, $yCRV depegged a lot with more than a 10% discount to get back $CRV.

– People are paying more than 200% to borrow $CRV.

– People telling Aave is not secure while the system was ready for such an event.

The Future Of Aave In Jeopardy?

On the other hand, the protocol operated as intended without centralized intervention. The team behind Aave claims that they will talk with the community and the DAO about the recent incident. 

In that sense, the protocol might introduce changes in the coming days to mitigate “long tail asset risk.” Many believe Eisenberg will resume its attack on the protocol once he can pool together more capital. 

You can call it attack on AAVE, but I actually think they made a mistake by not implementing a hard cap on how much CRV/other illiquid coins can you use as a collateral on AAVE. Otherwise you get a similar problem as with FTT.

— DeFiac (@TheDEFIac) November 23, 2022 

The “Bad Debt” attack on Aave was like the situation that led to the FTX’s collapse. The failed company issued held massive amounts of FTT, its native token. When the price of the asset crashed, Sam Bankman-Fried’s empire followed. 

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Unlike FTX, as many users pointed out, everyone can access on-chain information about Eisenberg’s transactions, the state of the protocol’s finance, and the amount of bad debt it held on its balance sheet. This transparency is the critical difference between centralized ecosystems and decentralized protocols. The team behind Aave stated:

Most importantly, today’s events are in contrast to those we have seen with centralized entities in the space – the transactions were entirely traceable and auditable on-chain, providing transparency for users and the community.

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Reynaldo Marquez
Reynaldo Marquez

Reynaldo Marquez

A literature major, Reynaldo Márquez has been deeply immersed in the crypto industry since 2017. His journey began with translating articles for various crypto news outlets, a role he took on with zeal. In 2018, amidst a challenging market, he embraced his first writing assignment, demonstrating his unwavering commitment to the nascent industry and the promise of change it bears for many people worldwide.
In March 2021, he joined the prestigious crypto news outlet NewsBTC and Bitcoinist, where he not only reported on the latest crypto news but also had the privilege of interviewing some of the industry's most influential figures. A year later, his dedication and hard work were recognized, and he was promoted to Managing Editor, a position he currently holds with pride.
He believes in honesty, good communication, hard work, and the power of cryptocurrency and its potential to transform people's lives, especially those alienated by the legacy financial system. Born in 1992 in Venezuela, Reynaldo is familiar with how governments and central banks can negatively affect people, their everyday lives, and their futures by creating inflation and erasing their hopes for a better future. Thus, like many Venezuelans, he embraced this new technology to help him and his family navigate difficult times.
In another life, Reynaldo would have pursued a career as an investigator, most likely tracking down the origins of the Cyberpunk movement with the publication of William Gibson’s ‘Neuromancer.’ The intersection between fiction and reality, with the materialization of Bitcoin in 2009, would have allowed him to dive deep into the crypto sphere as something more than a financial phenomenon but also a cultural shift in society that was brewing since the XX century, and maybe even sooner, in the XIX century with the publication of Henry David Thoreau’s ‘Civil Disobedience.’
But that’s for another life. In this one, Reynaldo has been trading to improve his trading skills. Since 2023, he has been trying to learn Python to create successful strategies and find ways to execute them. It is a difficult task, which continues to keep him busy today and will most likely continue to keep him busy in the near and long term.
In his free time, he enjoys lifting heavy objects, reading, watching movies, and listening to his favorite music. Some of his favorite authors are Walt Whitman, William Faulkner, Allen Ginsberg, James Baldwin, Raymond Carver, Ray Bradbury, George Orwell, Mario Vargas Llosa, Reinaldo Arenas, Rafael Cadenas, and many others. Lately, he has been primarily interested in reading about dystopic societies, a topic that deeply resonates with the crypto industry.
Since 2023, he has lived in Spain with his wife. He loves the weather, the food, and the people and their culture. They both expect to travel much more within the country they now call home and beyond its border. He hopes to retire with his wife, maybe in a quiet place near a beach, but most likely in a city close to a library and a university with his kids and, hopefully, grandkids.

Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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