Curve founder Michael Egorov has introduced a market-based approach to resolve approximately $700,000 in bad debt associated with LlamaLend, Curve's lending platform. Egorov's proposal involves creating a tokenized vault for affected lender positions, which can then be bought and sold through a dedicated Curve pool. This approach aims to provide trapped lenders with an exit option while allowing outside buyers to determine the value of the distressed claims. The plan is an alternative to seeking a bailout from Curve's DAO, instead relying on market forces to address the bad debt.
The affected lenders are currently unable to withdraw their positions, which are backed by around 70% of their stated value, due to the automated market maker's inability to keep up with the rapid price movements during the October 10 crash. Egorov's proposal suggests that the tokenized claims still hold value, as the loss is not open-ended, and the conversion of CRV to crvUSD provides a potential opportunity for recovery if CRV's price rises. The proposed pool would utilize Curve's Stableswap design, with a 1% swap fee, and liquidity centered around 71% solvency.
This would allow trapped depositors to sell their vault tokens at a discount or wait for a potential CRV recovery, while buyers would be making a long-term bet on CRV's recovery. The proposal is being presented as a market-driven solution, distinct from the coordinated bailout efforts seen in other DeFi protocols, such as Aave.