News

Aave protocol buys 2.7M tokens to offset bad debts caused by Eisenberg

Published

1 year ago

January 27, 2023

Marc Zeller, integrations lead at decentralized finance (DeFi) lending protocol Aave has disclosed in a new publication on the 26th of January, 2023 that the company has purchased 2.7 million Curve (CRV) tokens to offset the “excessive residual bad debt” of over a dozen transactions within the next 15 hours. This action was taken in response to the community’s assent of Aave Improvement Protocol (AIP) 144, which deployed a swap contract to buy 2.7 million CRV units with a $3,105,000 expenditure limit on USD Coin tickers down $1.00 and a maximum unit value of $1.15 per CRV.

The bad debt on the Aave protocol is one of the consequences of a sophisticated attack that occurred on November 23, 2022. The perpetrator Avraham Eisenberg, who had previously drained the DeFi protocol Mango Markets and caused $47 million in net damages, took on a series of heavy volume short CRV positions on Aave in an effort to stage a short squeeze and force developers to buyback his positions at up to 100% slippage due to lack of liquidity.

Eisenberg lost $10 million on the trade since Aave had far more liquidity than he had anticipated. The incident nevertheless resulted in significant slippage, and after liquidating Eisenberg’s investments, Aave was left with a total of 2.656 million CRV in bad debt.

On the same day, Mango Markets sued Eisenberg, requesting that the court revoke its $47 million bounty deal with the hacker for his part in the $117 million breach on October 12, 2022. Eisenberg is accused by the U.S. Securities and Exchange Commission of stealing digital assets worth $117 million. The Federal Bureau of Investigation detained Eisenberg on December 27, 2022, in Puerto Rico, on suspicion of manipulating and defrauding the commodities markets.