Kujira Foundation’s Tokens Stung by Its Own Leveraged Positions as Bets Backfire

As a seasoned analyst with over two decades of experience in traditional and decentralized finance, I’ve seen my fair share of ups and downs, bull markets, and bear markets. The recent turn of events at Kujira, however, is a stark reminder that even the most promising projects can face unexpected challenges.

In simple terms, the creators of Kujira, a blockchain specializing in decentralized finance (DeFi), established leveraged liquidity positions which unfortunately led to a significant drop. Over a period of 24 hours, the value of the network’s KUJI tokens plummeted by 55%.

On Thursday, the digital wallets linked to the Kujira Foundation (an organization involved in developing and maintaining Cosmos-based projects named Kujira) began an automatic sell-off of their KUJI tokens. This happened because some of their positions on the protocol turned into unpaid loans worth millions of dollars, known as bad debt.

During a time of market instability, the loans taken by Kujira using their KUJI tokens, which were publicly allocated, became undercollateralized, resulting in compulsory sales (liquidations) of these tokens. This chain reaction of liquidations caused the value of KUJI to decrease further, leading to even more liquidations, falling prices, and a continuous decline (downward spiral).

In simpler terms, liquidations refer to the forced closing of a trader’s positions when they have lost a significant portion or all of their initial deposit (margin). However, these liquidations can be prevented by adding more funds to maintain the trade.

On a Telegram announcement yesterday, a representative from the Kujira team explained that the leveraged positions were removed with the intention to boost the worth of the network’s suite of applications.

“A team member from Kujira suggested that some operations funds should be utilized to stimulate growth across the ecosystem by providing initial liquidity and encouraging activity. They strongly believed this decision was appropriate.”

“Unfortunately, these incidents occurred simultaneously with numerous assaults. We’re not seeking sympathy, merely providing context. The assailants have been focusing on our team’s strategic posts, and ever since these positions were established, we’ve found ourselves in a continuous battle.”

As a crypto investor, I found myself holding over $124 million in assets at the peak of Kujira in March 2024. However, the value has seen a significant drop this week, reaching just $50 million, and further down to $35 million by Friday morning, following the liquidations of the KUJI token.