The systemic risk that lies at the heart of the Curve Finance protocol has not been completely resolved, and the protocol will face “one more stress test” in February, according to a Jan. 8 report from pseudonymous crypto investment analyst and X user DeFi Made Here.

According to the report, a large number of Curve (CRV) tokens will become tradeable in the coming weeks, and the sale of these tokens may lead to “a similar situation which happened back in August” where the CRV token threatened to collapse in price. However, DeFi Made Here also cautioned that this scenario is only a possibility.

1/ $CRV is a ticking bomb

The Curve ecosystem is in the hands of "questionable people/entities" and Mich's ability to service his debt which grows $1.7M/month.

I will explain why I see a light at the end of the tunnel and how @0xSifu is playing this game. pic.twitter.com/KPZ97JVNkm

— DeFi Made Here (@DeFi_Made_Here) January 8, 2024

According to their X profile, DeFi Made Here is an analyst for crypto investment fund Alphabeth Capital and an adviser for Web3 developer Good Entry Labs.

The founder of Curve Finance, Michael Egorov, owed $100 million in debt to various decentralized finance (DeFi) protocols as of Aug/ 1, according to crypto research firm Delphi Digital. This debt was backed by CRV tokens, and critics pointed to it as a risk to the Curve protocol and the DeFI system as a whole. However, when Curve was exploited for $62 million in August, Egorov paid back some of his debts , and the protocol seemed to have weathered the storm. At the time of the exploit, the CRV token price was approximately $0.63. It has since fallen to $0.55, a 12.7% decline according to data from CoinMarketCap.

In their report, DeFi Made Here suggested that this calm in the market may be masking an underlying weakness in the Curve protocol. “$CRV is a ticking bomb,” the analyst stated. Its ecosystem “is in the hands of ‘questionable people/entities’ and Mich's ability to service his debt which grows $1.7M/month [is becoming more difficult].”

The analyst claims that Egorov “was close to liquidation” in August but knew that he “couldn't keep his public promise to repay the debts if necessary.” In response to this threat, Egorov decided to sell some of his CRV tokens to investors through an over-the-counter (OTC) trade and use the cash to pay back the debt. However, this tactic would not have worked if the investors who bought the coins dumped them on the market, so Egorov insisted on a “handshake agreement” that none of them would sell prior to February, 2024. “231M $CRV were sold for $92M at a $0.4 price with a handshake agreement not to sell OTCed CRV before February 2024,” DeFi Made Here stated.

The counterparties to this trade included market makers Wintermute and DW Labs, Tron network developer Justin Sun, Web3 developer Jeffrey Huang (known as “Machi Big Brother”), and other crypto investors.

7/ The full list of counterparties is on the screenshot below

It includes: @wintermute_t @DWFLabs @dcfgod @machibigbrother @justinsuntron

and others https://t.co/03Izzan2qN pic.twitter.com/08hwJpTykh

— DeFi Made Here (@DeFi_Made_Here) January 8, 2024

After Egorov successfully raised the cash to pay back his loans, confidence in Curve was restored. However, DeFi Made Here claims that Egorov took out $75 million in new loans when the Silo Llama protocol was launched in October. Silo Llama uses Curve’s stablecoin, crvUSD, for collateral. About $45 million of the total was borrowed from it, while the remaining funds were obtained from Fraxlend and other protocols, the analyst claimed.

Related: Curve Finance to disburse $49M in compensation to hack victims

One of the biggest liquidity providers for these loans is DeFi developer Michael Patryn (known as “0xSifu”), the report claims. Patryn is also “shorting” CRV, and could start “withdrawing liquidity from the pool and shorting more CRV” when the OTC tokens become available for trade in February. This could once again result in a crisis for the Curve protocol, leading to fears of Egorov’s loan liquidations and cascading effects throughout the Curve ecosystem. For this reason, the protocol will face another upcoming “stress test,” as the analyst claimed:

“Curve has to pass one more stress test in the upcoming weeks when OTCed CRV will become liquid. Unfortunately, the founder's debt puts a lot of pressure on the health of the whole Curve ecosystem and is a systemic risk.”

However, DeFi Made Here also claimed that this scenario was only a possibility. Patryn could be a “good actor.” In which case, “He will simply repay his CRV debt, will continue providing liquidity for [Egorov], and OTC buyers won't do smth similar.” The analyst expressed hope that this optimistic scenario will play out and that “the upcoming events won't hurt Curve and CRV design limitations will allow the ecosystem to sustain.”

Curve is currently the seventeenth largest DeFi protocol, according to blockchain analytics platform DeFiLlama. It has over $1.6 billion worth of crypto assets locked within its contracts.