The Kujira Foundation, known for its decentralized finance (DeFi) blockchain, recently faced a major setback when their leveraged liquidity positions resulted in a 55% drop in the value of their KUJI tokens within just 24 hours. This drastic decline was caused by the liquidation of leveraged positions by Kujira’s operational wallets, leading to substantial losses and further price decreases.
The foundation’s wallets, responsible for managing the Cosmos-based Kujira network, experienced automatic liquidations of their KUJI holdings due to undercollateralized loans amounting to millions of dollars. These liquidations occurred during a period of market volatility, triggering a downward spiral of decreasing prices and additional liquidations.
Liquidations are the forced closure of leveraged positions when the trader fails to maintain the required margin. In this case, the leveraged positions taken by Kujira’s team were intended to boost liquidity and activity across the network but unfortunately coincided with various attacks, resulting in significant losses.
At its peak in March 2024, Kujira had over $124 million locked in funds, which decreased to $50 million earlier in the week and further plummeted to $35 million after the KUJI token liquidations. To address this crisis, the team announced plans to establish a decentralized autonomous organization (DAO) to oversee the Kujira Treasury and core protocols. The DAO will focus on reducing debt and increasing transparency within the organization.
With 14 million KUJI tokens, equivalent to $5.5 million at current prices, held in the treasury, the DAO will take control of the core Kujira Protocols and allow community members to propose and vote on changes. This move towards decentralization aims to prevent similar incidents in the future and ensure better governance of the organization.
Overall, the Kujira Foundation’s struggle with leveraged positions serves as a cautionary tale in the world of decentralized finance, highlighting the importance of robust risk management practices and transparency in financial operations. By implementing measures such as the DAO, the foundation hopes to recover from its losses and regain the trust of its community members.