Aave purchases 2.7M CRV to clear bad debt following failed Eisenberg attack

January 26, 2023 Coin Telegraph

Aave

Following a failed short attack, DeFi exploiter Avraham Eisenberg was liquidated from Aave at a loss of $10 million.

According to a new post on Jan. 26, Marc Zeller, integrations lead at decentralized finance (DeFi) lending protocol Aave, stated that the firm purchased 2.7 million Curve (CRV) tokens, which would clear “excessive remaining bad debt” within the next 15 hours over a dozen transactions. The move follows the community approval of Aave Improvement Protocol (AIP) 144, which deployed a swap contract that acquires 2.7 million units of CRV, with a USD Coin (USDC) spend limit of $3,105,000 and a maximum unit value of $1.15 per CRV.

The bad debt on the Aave protocol resulted from a sophisticated exploit that took place on Nov. 23. Avaraham Eisenberg, who previously drained 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 attempt to orchestrate a short squeeze and force developers to buyback his positions at upward of 100% slippage due to lack of liquidity.

However, it turned out Aave had much more liquidity than anticipated, and Eisenberg reportedly lost $10 million on the trade. Nevertheless, some slippage occurred as a result of the incident, and Aave was left with a total of 2.656 million CRV in bad debt while liquidating Eisenberg’s positions.

The same day, Mango Markets filed a lawsuit against Eisenberg, asking the court to rescind its $47-million bounty agreement with the hacker for his role in the $117-million exploit on Oct. 12, 2022. The United States Securities and Exchange Commission has charged Eisenberg with stealing $117 million in digital assets. Eisenberg was arrested in Puerto Rico by the Federal Bureau of Investigation on Dec. 27, 2022, on charges of commodities manipulation and commodities fraud.

*Avraham Eisenberg (right) during an interview. Source: YouYube, “Unchained” podcast*

Aave proposes governance changes after failed $60M short attack

November 23, 2022 Coin Telegraph

Aave

The exploit failed due to a miscalculation of Aave's liquidity levels.

On Nov. 23, one day after Mango Markets exploiter Avraham Eisenberg attempted to use a series of sophisticated short sales to exploit decentralized finance protocol Aave, project contributors have put forth a series of proposals to deal with the aftermath. As told by protocol engineering developer Llama and financial modeling platform Gauntlet both of whom are deployed on Aave:

"Over this past week, the user 0x57e04786e231af3343562c062e0d058f25dace9e [wallet associated with Eisenberg] opened a short position on CRV [Curve] using USDC as collateral. At its peak, the user was shorting ~92M units of CRV (roughly $60M USD at today's prices). The attempt to short CRV on Aave has been unsuccessful, and the user lost ~$10M USD from the liquidations."

Llama wrote that the user had been liquidated but at the cost of $1.6 million in bad debt, likely due to slippage. "This excess debt is isolated only to the CRV market," the firm wrote. "While this is a small amount relative to the total debt of Aave, and well within the limits of Aave's Safety Module, it is best practice to recapitalize the system to make whole the CRV market."

Going forward, Llama's proposal calls upon the Gauntlet’s insolvency fund and Aave Treasury to make whole the bad debt. Another separate proposal put forth by Gauntlet calls for temporarily freezing a list of token markets (including CRV) on Aave V2. The day prior, Eisenberg attempted to induce a liquidity crunch on Aave by shorting large amounts of CRV, which was illiquid on the platform, and forcing the smart contracts to buyback the positions at a loss due to very high slippage (upwards of 90%). However, the trade failed when Eisenberg was liquidated with much lower slippage levels than expected.

Mango Markets hacker allegedly feigns Curve short attack to exploit Aave

November 22, 2022 Coin Telegraph

Aave

It appears that shorting of CRV tokens was a distraction shot to exploit a sophisticated loophole on DeFi platform Aave.

As described by analysts at Lookonchain on Nov. 22, tokens of decentralized exchange Curve Finance (CRV) appear to have suffered a major short-seller attack. According to Lookonchain, ponzishorter.eth, an address associated with Mango Markets exploiter Avraham Eisenberg, first swapped 40 million USD Coin (USDC) on Nov. 13 into decentralized finance protocol Aave to borrow CRV for selling.

The act allegedly sent the price of CRV falling from $0.625 to $0.464 during the week. Fast forward to today, blockchain data shows that ponzishorter.eth borrowed a further 30 million CRV ($14.85 million) through two transactions and transferred them to OKEx for selling. The team at Lookonchain hypothesized that the trade was conducted to drive down the token price "so many people who used CRV as collateral will face liquidation."

In response to the heavy selling activity, a wallet associated with Curve's founder added 20 million more CRV in collateral. On Aave, the wallet addresses' health factor was 1.65 at the time of publication, indicating an excess of collateral against borrowed assets.

But as told by blockchain analytics firm Arkham, the trades "may simply be bait," with Aave being the primary target instead. Arkham claims that Eisenberg built up an over $100 million position on Aave for a sophisticated trading scheme.

It first involves a distraction short of CRV tokens on Aave, which is illiquid on the platform but also has very low margin requirements, both of which are important factors for the exploit. The ensuing attention would prompt users to buy the dip en mass to defend the price of CRV and, for others, to try to squeeze the short-seller to cover their position for a loss.

However, the real conspiracy appears to be exploiting the possibility that Aave cannot cover Eisenberg's CRV short positions, as the platform allegedly does not have enough liquidity to buy back more than 20% of the short. This would then favor bets against Aave and the price decline of its native token:

"The real target here was AAVE's vulnerable looping system, which Avi mentioned last month. Using $40 million to borrow almost $50 million of CRV could leave AAVE with severe bad debt."

"To liquidate Avi's position, Aave liquidators will have no way to buy back all the CRV he borrowed. AAVE will have to sell significant amounts of tokens from the safety module to cover this loss," wrote Arkham. A screenshot of a swap quote provided by the firm shows an 89.8% potential swap impact between USDT and CRV for the estimated $100M position.

he put in a fuck ton of usdc. can borrow at 90% ltv

borrowed heaps of $CRV. psyop short.

pump curve ridiculously.

aave has to liquidate the "usdc" and buy back enormous amounts of $CRV, literally 50-100% slippage on orders of that size
— Fraxgener 200x (@napgener) November 22, 2022

At the time of publication, CRV is up 15.47% to $0.5742 in the past 24 hours, while the price of Aave has declined by 6.33% to $53.54 during the same period. On Oct. 11, Eisenberg drained $117 million from the Mango Markets protocol and kept $47 million as bug bounty before returning the rest, calling it a "highly profitable trading strategy."

Eisenberg