Curve DAO’s governance token CRV dropped 12% on June 15 after reports surfaced of its founder, Michael Egorov, taking risky loans on Aave. According to LookOnChain, Egorov deposited 431 million CRV, worth around $246 million, across multiple decentralized lending protocols and borrowed $101.5 million of stablecoins on multiple platforms. The deposits by Egorov account for 50.5% of CRV’s circulating supply, and CRV faces a liquidation threat of $107 million on Aave if its value falls below $0.37.

Short-Term Upside Brewing Amidst Risky Loans

Despite the risky loans taken by Egorov, negative bets on CRV have risen considerably, providing fuel for a possible quick upside move. The open interest volume for CRV perpetual swap contracts has increased from $35.5 million to $46.3 million following the revelation of Egorov’s loans. As the short side gets crowded, it creates an opportunity for buyers to hunt their stop losses, known as a short squeeze. Technically, the CRV/USD pair could find support around the 2022 low between $0.53 and $0.40, and a quick recovery is possible from a short squeeze, which could tag the 50-day moving average at $0.82.

To the downside, a breakdown of this support level could see the sell-off extend toward the 2021 low near $0.32. At the time of publishing, CRV was last trading at around $0.59. The CRV/ETH token pair looks particularly weak, as the pair recorded a new all-time low. The pair appears to be following a descending pattern, which hints at a likelihood of a rebound from the 0.0032 ETH level. However, the long-term trend remains negative while engulfed in a descending channel, especially with the ETH market structure looking particularly bearish below the 0.0042 ETH support level from 2022 lows.

CRV’s Liquidity and Revenue Stats

Curve’s revenue stats are not favorable towards buyers, as the platform’s fees declined significantly after the FTX collapse in November 2022, reducing CRV’s yield over time. CRV stakers are paid 50% of Curve’s revenue from trading fees. While the decentralized exchange witnessed a temporary surge in activity in March 2023, the fees have remained near two-year lows in recent months. Another way CRV tokenholders accrue value is through bribes earned from voting for directing rewards toward specific pools. Similar to trading fees, the earnings through bribes have also remained near a one-year low.

Curve’s liquidity has declined significantly over recent months, making CRV susceptible to violent price swings. Crypto research firm Kaiko found that CRV’s liquidity has declined significantly over the year, to the extent that an $800,000 order can move prices by 2%. There is a lot of uncertainty around CRV as it faces liquidation risk from a $264 million CRV-collateralized decentralized finance loan on Aave. The decrease in CRV’s market liquidity further adds to the risk for traders as the token is exposed to high volatility.

Despite the risks associated with CRV, there is a possibility of short-term upside brewing amidst the negative bets and short squeeze phenomenon. However, the long-term trend remains negative, and CRV’s liquidity and revenue stats do not favor buyers. Traders should exercise caution while dealing with CRV, given its susceptibility to violent price swings.

Analysis

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