• Aave, a decentralized finance protocol, has eliminated the bad debt of 2.7 million Curve DAO Tokens (CRV) from a botched November trade by Mango Markets exploiter Avi Eisenberg.
• The move came after a decentralized autonomous organization (DAO) and Aave token holders voted to procure the necessary CRV tokens using the ParaSwap decentralized exchange aggregator.
• The action also took place prior to the activation of a major tech upgrade called Aave v3.
Decentralized finance (DeFi) protocol Aave recently took action that eliminated the bad debt of 2.7 million of curve dao tokens (CRV) from a botched November trade by Mango Markets exploiter Avi Eisenberg, as per blockchain data on Etherscan. The move came after Aave’s community approved the procurement of the necessary CRV tokens using the ParaSwap decentralized exchange aggregator in a governance vote concluded on Tuesday.
The protocol is governed by a decentralized autonomous organization (DAO) that allows Aave token holders to vote on proposals. The action also took place prior to the activation of a major tech upgrade of the protocol called Aave v3.
The debt was created in November when Avraham Eisenberg roiled Aave with a trading strategy that involved borrowing tens of millions of CRV tokens from the platform. After a sudden price spike due to a short squeeze, his position got liquidated, leaving Aave with bad debt in CRV that amounted to $1.6 million at the time.
An analysis by DeFi data platform EigenPhi found that the liquidator of the bad debt pocketed some $88,000 in profits from the trade. The liquidator then put the debt into a smart contract, which was then auctioned off and eventually purchased by Aave.
The bad debt was finally cleared from the books of Aave without the need for a bailout from the protocol. This move was made possible thanks to the Aave Improvement Proposal (AIP), a framework for introducing and governing new features to the platform. The AIP was approved by the DAO, allowing Aave to purchase the CRV tokens to clear the debt.
This incident has proven the power of Aave’s governance system, as it was able to successfully resolve a bad debt situation without any negative consequences on the protocol. This is a testament to the robustness of the Aave platform, and it is likely to attract even more interest from institutional investors.