Decentralized exchange Curve’s CRV token continues to lose ground as the looming threat of potential large liquidation of the founder’s borrowed position has traders piling into short positions.

Early Tuesday, the cryptocurrency fell to around 5 cents, reaching the lowest since Nov. 22, according to CoinDesk data. Prices are down roughly 30% since Curve fell victim to a reentrancy attack late Sunday.

The notional open interest in perpetual futures tied to CRV has doubled to $106 million alongside deeply negative funding rates, according to data source Velo. This is generally a sign of traders shorting or betting on a price decline.

The bearish positioning likely stems from fears that the potential liquidation of Curve founder Michael Egorov’s large borrowing positions on Aave and Frax may destabilize Curve and the wider crypto market.

“Yesterday, several @CurveFinance pools were exploited. Curve founder Michael Egorov, currently has a ~$100M loan backed by 427.5m $CRV (about 47% of the entire CRV circulating supply). With $CRV down 10% over the past 24 hours, the health of Curve is in jeopardy,” crypto analytics firm Delphi Digital tweeted.

Per Delphi, Egorov has borrowed 63.2 million tether (USDT) from decentralized lender Aave against collateral of 305 million CRV. The position will be liquidated if CRV/USDT pair drops to $0.37.

Egorov also supplied 59 million CRV to Fraxlend as collateral backing the 15.8 million FRAX loan. This borrowing is smaller than the USDT loan, but poses a bigger risk to CRV due to Fraxlend’s Time-Weighted Variable Interest Rate, according to Delphi.

Frax’s time-weighted variable interest rate adjusts the interest rate up or down over time based on whether the utilization rate or the ratio of borrowed assets to collateral supplied is above or below a specified target range.

“At 100% utilization, which it is currently at, the interest rate will double every 12 hours. The current interest rate is 81.20%, but can be expected to increase to the maximum of nearly 10,000% APY after just 3.5 days,” Delphi explained in a tweet thread.

“This astronomical interest rate could lead to his eventual liquidation, regardless of $CRV price,” Delphi added. Liquidation would mean the collateral backing the loan, that is, CRV, would be sold off into the already weak market, creating volatility in the wider decentralized finance ecosystem.

Note that extreme bearish positioning in the token means potential for a short squeeze if and when concerns about Egorov’s loan subside.

A short squeeze is a rapid move higher driven by bears abandoning their bearish bets. For a short squeeze to occur, the market needs to have a higher-than-usual bearish activity, as indicated by CRV’s deeply negative funding rates. In such situations, a minor price bump can send bears or short sellers running to square off their positions, which, in turn, drives prices further up.