On November 23, one day after Mango Markets exploiter Avraham Eisenberg attempted to use a series of sophisticated short selling to attack the decentralized finance protocol Aave, project collaborators have submitted a series of proposals to make face the consequences. As reported by protocol engineering developer Llama and financial modeling platform Gauntlet, both deployed on Aave:
“Over the past week, user 0x57e04786e231af3343562c062e0d058f25dace9e [billetera asociada a Eisenberg] opened a short position in CRV [Curve] using USDC as collateral. At its peak, the user was shorting ~92 million units of CRVs (approximately $60 million at current prices). Attempt to short CRV on Aave has been unsuccessful, and user lost ~$10M USD on liquidations.”
Llama wrote that the user had been terminated, but at the cost of $1.6 million in bad debt, likely due to the diversions. “This excess debt is isolated only in the CRV market,” the firm wrote. “While this is a small amount relative to Aave’s total debt, and well within the limits of Aave’s Security Module, it is best practice to recapitalize the system to reward the CRV market.”
Looking ahead, Llama’s proposal calls on the Gauntlet insolvency fund and the Aave Treasury to take over the bad debt. Another separate proposal submitted by Gauntlet calls for a list of token markets (including CRV) to be temporarily frozen in Aave V2. The day before, Eisenberg tried to induce a liquidity crisis on Aave by shorting large amounts of CRV, which had no liquidity on the platform, and forcing smart contracts to repurchase losing positions due to very high slippage (more than 90%). However, the trade fell through when Eisenberg was liquidated with much lower than expected slippage levels.
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