Mango Market operator Abraham Eisenberg’s attempt to replicate his “highly profitable trading strategy” on decentralized finance (DeFi) protocol Aave failed, resulting in the loss of millions. According to on-chain analytics firm Lookonchain, an address linked to Eisenberg transferred $40 million (roughly Rs. 325 crore) worth of USD Coin (USDC) to Aave to borrow the Curve (CRV) token with the intention of shorting. This caused the CRV price to fall by approximately 26 percent to $0.464 (approximately Rs. 37.34) from $0.625 (approximately Rs. 51.14) in the last week.
That said, the move didn’t quite go to plan as the community rallied behind CRV, buying the DeFi token and causing its value to jump 46 percent in the last 24 hours to $0.71 (roughly Rs. 57.63).
The CRV war took place on #Aave yesterday and ended up with the longer one beating the shorter one.
— Lookonchain (@lookonchain) November 23, 2022
Blockchain analytics firm Arkham Intelligence tweeted that Eisenberg may be tricking people into believing that he shorted CRV to cause the liquidation of DeFi network founder Michael Egorov.
According to Arkham Intelligence, Eisenberg’s real goal was that of AAVE a vulnerable cyclical system and its loans could leave the DeFi network with serious bad debts. The blockchain analytics firm added: “To liquidate Avi’s position, AAVE’s liquidators will have no way to buy back all the CRVs he has borrowed. There is no liquidity on-chain to pay out more than ~20 percent of the position. AAVE will have to sell significant amounts of security module tokens to cover this loss.”
In October, Eisenberg explained that it is possible to manipulate Aave’s credit policies to take out massive loans, dump and leave Aave in bad debt.
After the failure of the short strategy, Aave said the liquidation process of its CRV pool was successful and going according to plan. But it noted that the position is not fully covered as 2.6 million CRVs ($1.6 million or roughly Rs 13 crore) remain, representing less than 0.1 percent of the positions on the protocol.
2/6 A large loan from CRV that accumulated in the last week was mostly cleared by the protocol liquidation process. However, the position was not fully covered, leaving 2.64 million CRV (≈ $1.6 million in current value). This represents < 0.1% of loans under the protocol.
— Aave (@AaveAave) November 22, 2022
New management proposal is now live on Aave, which will prevent another price manipulation on the platform.
Meanwhile, the Aave community pointed out that the developers could have done something to prevent this scenario, as they received several warnings about the possibility beforehand.