Top DeFi lenders allowed a crypto CEO to take a risky bet, raising key questions about how they manage risk.
– the exchange founder’s DeFi lenders realized they might soon be saddled with millions of dollars in bad debt.In granting Egorov’s loans, lending smart contracts had apparently failed to account for Egorov’s full collateral position, which was stashed across several disparate lending protocols, and therefore difficult to account for programmatically. Altogether, Egorov had put up a hefty one-third of all circulating CRV as collateral.
Banks hire professional managers to set these kinds of risk parameters. Aave and other DeFi lenders kick this responsibility to their investors. “More than 500 different parameters are talking to each other on the Aave protocol – it could be collateral factors, liquidation sensors, oracles, interest rates,” said Paul Frambot, CEO of the DeFi lending protocol Morpho. “You have votes to change those risk parameters constantly.”
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