Aave's Unmerited Price Dip due to the Curve Hack
John Barry | Wed Sep 06 2023
This article is a truncated version from Quantify Crypto Premium Research Report for Aave.
Curve Finance Hack Impacts Aave Price:
On July 30, 2023, several liquidity pools on Curve Finance were exploited. Hackers made off with approximately $73.5 million from Curve Finance, a result of a bug in an older Vyper compiler contract used in some of the Curve liquidity pools. The impact of the exploit was curtailed by white-hat hacker c0ffeebabe.eth, who thwarted an even larger theft. Approximately $52.3 million (around 73%) of the stolen funds have since been recovered.
Before the hack, Curve founder Michael Egorov had secured a $100 million loan using 427.5 million of the $CRV token as collateral, amounting to about 47% of the total $CRV supply. As the price of Curve began to drop, there were legitimate fears that this could trigger a liquidation, leading to a steep decline in the $CRV token's value. To prevent potential liquidation, Egorov sold 54.5 million $CRV tokens slightly below market value—but above the liquidation price—to settle his stablecoin loans, thereby enhancing the stability of his $CRV positions across various protocols.
Given Egorov's significant loan on Aave, concerns arose about a potential selloff of $Aave tokens should the aforementioned pool positions be liquidated. This is due to Aave's Safety Module, a $300 million AAVE/ETH insurance pool, which would sell AAVE tokens to compensate for losses if there was a substantial decline in $CRV price.
With the eventual return of the stolen $CRV tokens and the funds Egorov raised, a major price plunge due to liquidation was successfully averted.
Comparing Aave and Curve Audits:
When comparing the audit histories of Aave and Curve in the DeFi space, some distinct differences emerge. Aave has undergone a robust audit process, with at least 12 audits to its name. Renowned firms that have conducted these audits for Aave include MixBytes, CertiK, ConsenSys Diligence, and OpenZeppelin. Notably, PeckShield, SigmaPrime, and Certora each completed two audits for Aave, while Trail of Bits and ABDK conducted one each. On the other hand, Curve's website mentions only three audits: two by Trail of Bits and one by Quantstamp.
A deeper dive into specific audit scores reveals Aave scoring 94% for its V3 and an impressive 96% for its V2 from DeFi Safety, whereas Curve sits at 78%.
CertiK gave Aave an audit score of 92.83 and Curve a score of 66.36.
Aave audits were longer and more detailed:
Trail of Bits audit text for Aave:
Trail of Bits audit text for Curve:
Curve uses ETH in some pools instead of WETH:
A best practices for DeFi protocols is to use WETH instead of ETH. Using raw Ethereum is risky as it creates vulnerabilities to reentrancy attacks. A reentrancy attack in Solidity repeatedly withdraws funds from a smart contract and transfers them to an unauthorized contract until the funds have been exhausted. WETH prevents a reentrancy attack as control is not transferred to the receiver.
As the chart above shows, Curve outperformed Aave in 2023 until the Curve hack. While Aave has demonstrated price stability over the past year, it has underperformed compared to Bitcoin.
Final Thoughts: Aave has lost approximately 27% of its value since Curve was hacked and is now around 38% below its July peak price of $88.12. Although both Aave and Curve are leading DeFi players, they have distinct business models. We've analyzed the code bases of both Aave and Curve, and, to cut a long story short, we firmly believe that Aave's code base is superior.
Quantify Crypto continues to maintain the highest ranking for Aave, while Aave currently has a bearish ranking for timeless its potential for a price increase when the next bull market cycle occurs is above average. Its seem to be time to decouple the price trading pattern between Aave and Curve.
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