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The Mango Markets hacker allegedly faked a short Curve attack to exploit Aave

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As described by analysts at Lookonchain on November 22, the decentralized exchange Curve Finance (CRV) token seems to have suffered a major problem. Short seller attack. According to Lookonchain, ponzishorter.eth, an address linked to mango market exploiter Avraham Eisenberg swapped $40 million (USDC) on DeFi protocol Aave on November 13 to borrow a CRV for sale.

The law allegedly drove the price of CRV down from $0.625 to $0.464 during the week. Fast forward to today, blockchain data shows that ponzishorter.eth borrowed another 30 million CRV ($14.85 million) through two transactions and transferred them to OKEx for sale. The team at Lookonchain hypothesized that the deal was done to lower the price of the token “many people who used CRV as collateral will face liquidation.”

In response to the heavy selling activity, a portfolio linked to the Curve founder added an additional 20 million CRV in collateral. On Aave, the portfolio address health factor was 1.65 at the time of publication, indicating an excess of collateral against borrowed assets.

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But as Tell By blockchain analytics firm Arkham, trades may be “just bait”, with Aave being the primary target instead. Arkham claims that Eisenberg created a position of more than $100 million on Aave for a sophisticated trading scheme.

It first includes less dispersal than CRV tokens on Aave, is illiquid on the platform but also has very low margin requirements, both of which are important factors for exploitation. Subsequent attention will prompt users to buy dip en block to defend the price of CRV and, for others, to try to pressure the short seller to cover his position for a loss.

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

“The real target here was AAVE’s vulnerable ring system, which Avey mentioned last month. Using $40 million to borrow nearly $50 million from CRV could leave AAVE with bad debt.”

“To liquidate Aave’s position, Aave’s liquidators would have no way of buying back all of the CRV that it borrowed. AAVE would have to sell large amounts of tokens from the security unit to cover this loss,” Arkham wrote. A screenshot of the swap rates provided by the company shows a potential swap impact of 89.8% between USDT and CRV for the $100M position.

At press time, CRV price is up 15.47% to $0.5742 in the last 24 hours, while Aave is down 6.33% to $53.54 over the same period. On Oct. 11, Eisenberg drained $117 million from Mango Markets protocol and kept $47 million in foul prize by Redo the restcalling it a “very profitable trading strategy”.