Curve DAO token plunges 14% under heavy short-selling pressure

Quick Take

  • A trader borrowed 70 million CRV tokens from Aave and sold the majority of them in an effort to short the token’s price. 
  • The token’s price plunged 14% on centralized and decentralized exchanges.

An unknown trader borrowed 70 million Curve DAO tokens (CRV), worth around $28 million, from Aave and sold the majority of them to drop the token's price.

The trader sold nearly all of the borrowed CRV tokens on centralized and decentralized spot exchanges, on-chain data shows. Typically short sellers will use a centralized perpetual trading platform, making this trader's short play unique. 

The selling pressure triggered a sharp fall in price. The token crashed over 14% at one point, going from $0.52 to $0.43, according to CoinGecko. CRV was trading at $0.47 at 7:00 a.m. ET. 

If the price of CRV falls below $0.242, a total of 185 million CRV tokens, or 10% of Curve's circulating supply, would be liquidated on Aave, according to an estimate from DeFiLlama. If that happens, it may prove to be a catalyst that may further drive down the price of CRV. This could be part of the trader's strategy.

Short sellers bet the token price will fall to make a profit. Borrowing on lending platforms and selling tokens is a manual way to take a short position on a particular asset.

Alternatively, as the price rises, the risk of the short seller being liquidated rises. This is known as a short squeeze and happens when short traders are forced to close their positions by buying back the underlying token. This poses some risk to the trader's position.

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