Community members of lending and lending platform Aave (AAVE) are submitting a governance proposal after a failed attempt to exploit the decentralized finance protocol (DeFi).
According to the AAVE community, a wallet with the address “0x57e04786e231af3343562c062e0d058f25dace9e” borrowed a huge amount of Curve DAO Token (CRV) on AAVE with $40 million worth of USD Coin (USDC) as collateral, with the end goal of keeping CRV short.
The proposal, written by DeFi risk management platform Gauntlet and protocol engineering developer Llama, says:
“In the past week, user 0x57e04786e231af3343562c062e0d058f25dace9e opened a short position on CRV with USDC as collateral. At peak, the user shorted ~92 million CRV units (approximately $60 million USD at current prices).”
The attempted exploit was foiled, but AAVE ran into bad debt from derailment.
“The attempt to short CRV on Aave failed and the user lost ~$10M USD from the liquidations. The user is fully liquidated, but despite this, Aave has built up a much smaller (~$1.6M USD) bad debt position from the current CRV price.
The proposal calls for the use of Gauntlet’s insolvency repayment and the Aave Collector Contract to cover the excess debt, which is isolated in the CRV market.
“While this is a small amount relative to Aave’s total debt, and well within the limits of Aave’s safety module, it is good practice to recapitalize the system to complete the CRV market.”
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