Trading Strategy.ai, an algorithmic trading protocol, announced on November 23, 2022, that crypto trader Avraham Eisenberg attempted to liquidate a long and prominent $CRV position but failed.
1/6 We want to address the cycle of liquidations that occurred in the CRV pool on the Aave Protocol today. The liquidations were successful (and worked as designed), but unfortunately, the size of the position left some excess debt within the protocol.
— Aave (@AaveAave) November 22, 2022
The trader intends to liquidate at a $0.27 CRV/USD price, but other users noticed the oversized position and a chance for a short squeeze.
The trader, now known as Ponzishorter and dubbed an infamous hacker, was alleged to have borrowed and then resold a CRV on the Aave platform that was worth millions of dollars.
He does this in an effort to profit from the founder positions of both the short and liquidate platforms. This led to a sporadic drop in the CRV price, which dropped to $0.4 from $0.54; however, investors came to the rescue, and it rose back with a 55% increase.
The hacker’s scheme was clever; according to the cryptoanalytic platform Arkham, the attacker borrowed $50 million CRV in collateral-backed loans using $40 million in security.
It could lead to a severe problem if Aave can’t buy back all the CRVs Avraham borrowed, leading to debt that will result in them liquidating their positions to cover the losses.
According to the analyst, Aave was the real target, and it was not the first time this hacker exploited platforms. He is said to be responsible for the hack on Mango Market, a Solana based platform, siphoning $114 million.
Even though other CRV traders were able to squeeze the hacker out, Aave ended up with a $1.3 million debt. Eisenberg, after failing in his exploit, lost $63 million worth of USDC and made a profit of $92 million worth of $CRV, equivalent to $57 million.
Aave platforms are already working to clear bad debts. On their governance website, a user, likely a validator, suggested that they bank on DAOs treasury.
The user said that with the current price of $CRV, it would take the platform a month to recover the losses.
The platform was left with quite a little debt but much damage to their system, as users can lose trust in the safety of their operations and pull out.
However, the platform is preparing to deploy the Aave version 3 upgrade, which is expected to mitigate this event and effectively manage risks.
The level of damage the hacker has done to the platform and their investors’ morale is not yet clearly visible; however, what is clear to the public is that the platform is not giving up and is doing all it can to avoid future occurrences.