Curriculum·J304 Lending, Borrowing, and Collateralized Leverage·about 43 min
The liquidation event
By the end of this lesson you can
- →Compute what a liquidation takes from you, including the penalty
- →Identify the band between liquidatable and unprofitable to liquidate
- →Name the four dependencies a liquidation requires, each of which can fail
- →Explain why a large liquidation moves the price against itself
Junior · enrolled learners
This lesson opens with The Aave CRV liquidation, November 2022.
- What happened
- In November 2022 Avraham Eisenberg borrowed about 40 million CRV, worth roughly $20M, on Aave against USDC collateral, and moved the tokens to the exchange OKEx, by most readings to sell them. One widely reported reading is that he meant to push CRV down far enough to force liquidation of a large CRV-collateralized position held by Curve's founder. Instead CRV's price shot up about 75 percent within a few hours, in what appeared to be a short squeeze. Eisenberg's own borrow, a CRV debt, became undercollateralized and was liquidated, at a loss to him of roughly $10M by on-chain accounting. The liquidation took about an hour, more than 300 transactions and 20 liquidators, and CRV kept rising while it ran. It did not fully cover the debt, leaving Aave with roughly $1.6M of bad debt, about 2.66 million CRV, which the protocol later cleared by buying CRV on the market with treasury funds.
- The decision point
- The liquidation worked. It triggered, liquidators executed it, and it still left bad debt, because repaying a debt of tens of millions of CRV required liquidators to buy CRV, and buying that much into a rising market moved the price against the liquidation. A liquidation is not an accounting entry that restores solvency. It is a large market order in a finite book, per J302-01, and its own price impact is part of whether it succeeds.
- Recorded loss
- $1,600,000
What you will be able to answer
- →What does a liquidator receive?
- →What is the band between liquidatable and unprofitable?
- →What four things does a liquidation require?
- →Why can a large liquidation leave bad debt even when it executes?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.coindesk.com/markets/2022/11/22/mango-exploiter-gets-liquidated-after-roiling-aave-using-20m-of-borrowed-curve-tokens
- https://www.kaiko.com/resources/crv-aave-and-the-art-of-liquidation
- https://governance.aave.com/t/arfc-repay-excess-crv-debt-on-ethereum-v2/10955
- https://decrypt.co/115596/aave-feeling-the-squeeze-even-after-failed-attempt-by-mango-hacker
- https://medium.com/@whiterabbit_hq/black-thursday-for-makerdao-8-32-million-was-liquidated-for-0-dai-36b83cac56b6
- https://www.theblock.co/news/defi/2020-03-12-in-a-first-makerdao-protocol-to-auction-mkr-tokens-to-cover-4m-bad-debt-58606
Confidence high·Volatility medium·Reviewed 2026-08-06·Owner unassigned
Contested
Eisenberg's intent is inferred from on-chain activity. Decrypt reported two theses, forcing the liquidation of Curve's founder's CRV-backed loan or testing Aave's limits, and Kaiko describes the first as the presumed aim; this lesson does not depend on either. The mechanism being taught is that a liquidation of a large CRV debt left bad debt, which is a fact about depth rather than about motive.
Position sizes differ by source and date: CoinDesk reports about 40 million CRV (about $20M) borrowed against $40M of USDC, citing Arkham; Decrypt reports a loan built over ten days to 92 million CRV (about $39M) against $50M of USDC. The lesson uses CoinDesk's figures. The bad debt is $1.6M per CoinDesk, citing Block Analitica; Aave's recapitalization proposal counts 2,656,335 CRV of excess debt, about $1.76M at its 66.35 cent price, and Kaiko gives 2.6 million CRV.
R402-02 covers liquidation in the perpetuals context at Senior level, where funding, mark price and auto-deleveraging change the mechanics. This lesson covers collateralized borrowing only. Keep the split.
How much of the CRV price rise during the liquidation came from the liquidators' own buying, rather than from the wider squeeze, is not measured in any source used here. Kaiko documents that liquidators struggled to source CRV and that the price rose while the hour-long liquidation ran; the lesson's claim that the required purchase moved the price against the liquidation is its reading of that account.