Thanks @ChaosLabs and @Gauntlet for the quick response and analysis of the situation. We side with those worried about the potential of bad debt to the protocol caused by CRV-collateralized borrowing by the user in question. Note that this position has been detrimental to the TVL in Aave as stablecoin lenders have been withdrawing capital from the affected market. Therefore, we side with a measured approach to de-risking.
We are against drastically lowering the liquidation threshold (LT) at the current stage (although this should be done later, gradually) and against freezing the CRV market, to avoid a liquidation of the position in question. We support the proposal of setting CRV LTV to 0 to avoid further borrowing.
The main reasoning for our decision is that while the account in question reduced their position size, the key risk to the health of their position across protocols remains Fraxlend, where the interest rate grows exponentially at high utilization. We suspect that, similar to a set of transactions from the previous morning (view screenshot below), the account could shift the position over to Aave, increasing the risk to the protocol.
