Curve's CRV Token Turns Volatile As Exchange Balance Hits Record High

CRV, the governance token of decentralized exchange Curve, has turned volatile amid a surge in the number of coins held at centralized trading platforms.

The token dropped 17% to a two-year low of $0.40 early Tuesday before erasing the losses with a V-shaped recovery. At press time, the token had returned to positive territory for the day, changing hands at $0.53, according to CoinDesk data.

The number of CRV held in centralized exchange wallets has increased by 70% to a record 148.91 million this month, with the tally surging by 46% in the past 24 hours alone, per data tracked by Glassnode.

In other words, the number of CRV available for liquidation on centralized exchange has substantially increased. Investors typically transfer coins from their wallets to exchanges when intending to sell their positions.

Developments in the CRV market are notable, as Curve, which specializes in stablecoin swaps, is the biggest source of liquidity in decentralized finance. That means any issue at Curve can have broader market implications.

CRV's exchange balance has surged amid reports of a whale transferring large amount of borrowed tokens to centralized exchanges.

According to several Twitter-based researchers, including Lookonchain, the whale recently borrowed some 20 million CRV from the DeFi lending giant Aave and transferred half of that to OKEx, possibly to sell the cryptocurrency. The balance held on OKEx has increased by 11.3 million this month, according to Glassnode data.

The latest edition of the Curve newsletter has referred to the whale activity as a "big short".

A huge $CRV shorter borrowed 20M $CRV($9.9M) from #Aave and transferred 10M $CRV($4.9M) to #OKEx.

He has lent 37M $CRV from #Aave in the past 7 days.

The price of $CRV dropped from $0.625 to $0.464, a decrease of about 26%.

Now he is dumping the 20M $CRV he borrowed! pic.twitter.com/sSiMqEE5C3

— Lookonchain (@lookonchain) November 22, 2022

CRV's near-term prospects appear bleak as the uptick in the exchange balance is accompanied by a lack of incentive to hold the token or provide liquidity on Curve.

"While Curve was initially a winner after FTX, a lack of user engagement will now hurt them in the short term," Markus Thielen, head of research and strategy at crypto services provider Matrixport, said. "There is less interest from users to provide their tokens into liquidity pools and even lock them up in terms of total value locked."

"Genesis and DCG are adding to the risk of a fire sale for individual tokens," Thielen added.

Curve saw massive outflows between Nov. 8 and Nov. 13 as FTX went bust, injecting volatility and uncertainty into markets. The total value locked in Curve has declined to $3.78 billion, the lowest since February 2021.