The team behind Kujira, a decentralized finance (DeFi)-focused blockchain, put up leveraged liquidity positions that backfired, wiping 55% off the value of the network’s KUJI tokens in 24 hours.
Wallets belonging to the Kujira Foundation, which builds and contributes to running Cosmos-based Kujira, started to see their KUJI holdings automatically liquidated on Thursday as some of their leveraged positions on the protocol became bad debt to the tune of millions of dollars.
The liquidations occurred as loans taken by Kujira from their publicly allocated KUJI tokens became undercollateralized during a period of general market volatility. The liquidations sent KUJI lower, leading to more liquidations, even lower prices and a downward spiral.
Liquidations are the automatic closure of a trader’s leveraged position due to a partial or total loss of their initial margin. They can be stopped in time if a trader tops up funds to keep their position open.
In a Telegram broadcast message on Thursday, a Kujira team member said the leverage positions were taken out in the hope they would drive value across the network’s set of applications.
“As a team, we thought the best use of a portion of ops funds would be to leverage and deploy across the ecosystem to bootstrap liquidity and activity,” a @team_kujira member wrote on Telegram. “We genuinely felt like this was the correct course of action.”
“Sadly this coincided with various attacks. Not trying to feel sorry for ourselves but just explaining the sequence of events. People targetted the team positions, and it’s been a constant fight since these positions were created,” they wrote.
Kujira had more than $124 million worth of funds locked at its March 2024 peak. The value was down to $50 million earlier this week and $35 million on Friday morning following the KUJI token liquidations.
In a Friday post on X, the team said it would create a decentralized autonomous organization (DAO) – an organization managed in whole or in part using a blockchain-based voting system – to take ownership of the Kujira Treasury and core protocols “with an initial mandate to safely reduce debt.” It said there was 14 million KUJI, worth $5.5 million at current prices, in the treasury.
“This DAO will also assume control of the configuration of the core Kujira Protocols,” the team wrote. “Combined with upcoming admin dashboards, this will create transparency over how these protocols run, and allow the community to propose changes that will be voted on by members of the DAO.”
Edited by Sheldon Reback.
Disclosure
Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.
Shaurya is the Deputy Managing Editor for the Data & Tokens team, focusing on decentralized finance, markets, on-chain data, and governance across all major and minor blockchains.