Kujira Faces Crisis as Leveraged Liquidity Positions Result in 55% Drop in KUJI Tokens

Kujira’s Leveraged Liquidity Position Crisis

The Kujira blockchain, which is focused on decentralized finance (DeFi), recently faced a significant setback when its leveraged liquidity positions went awry, leading to a staggering 55% drop in the value of its native KUJI tokens within just 24 hours. This dramatic decline was triggered when wallets associated with the Kujira Foundation, the organization responsible for the development and maintenance of the Cosmos-based Kujira network, began experiencing automatic liquidations of their KUJI holdings.

On Thursday, the foundation’s leveraged positions, which were intended to bolster liquidity across the network, became undercollateralized due to widespread market volatility. This created a situation where loans taken out against their publicly allocated KUJI tokens turned into bad debt, amounting to millions of dollars. As these liquidations unfolded, the value of KUJI plummeted further, creating a vicious cycle of declining prices and additional liquidations.

Liquidations occur when a trader’s leveraged position is automatically closed due to a partial or complete loss of their initial margin. In many cases, these liquidations can be avoided if the trader injects more funds to maintain their position. In a message broadcasted via Telegram on Thursday, a representative from the Kujira team explained the rationale behind their leveraged positions, emphasizing their intention to enhance the ecosystem’s value.

“As a team, we believed that leveraging a portion of our operational funds would effectively bootstrap liquidity and stimulate activity across our range of applications,”

noted a member of the @team_kujira on Telegram. “We genuinely felt this was the right approach.”

However, the situation was exacerbated by a series of attacks targeting the team positions, leading to a relentless struggle for the Kujira team since the inception of these leveraged positions. The platform had once boasted over $124 million locked in funds at its peak in March 2024. However, this figure had dwindled to approximately $50 million earlier this week, and further dropped to around $35 million by Friday morning as a result of the KUJI token liquidations.

In response to this crisis, the Kujira team announced plans to establish a decentralized autonomous organization (DAO) aimed at taking control of the Kujira Treasury and core protocols. This DAO will have an initial focus on safely reducing the existing debt. Currently, the treasury holds 14 million KUJI tokens, valued at approximately $5.5 million based on current market prices.

The team stated, “This DAO will also take charge of the configuration of the core Kujira Protocols. By implementing upcoming administrative dashboards, we aim to enhance transparency regarding the operational management of these protocols, allowing community members to propose changes that will be subject to voting by DAO members.”