Curve's founder, Michael Egorov, has put forth a market-based solution to tackle approximately $700,000 in bad debt associated with LlamaLend, Curve's lending platform. The proposed plan involves packaging affected lender positions into a tokenized vault, enabling traders to buy and sell them 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 bad debt stemmed from a crash that saw over $19 billion in leveraged liquidations, resulting in lenders holding deposits backed by about 70% of their stated value.
Egorov's proposal seeks to create a market for these distressed claims, allowing buyers to purchase them at a discounted price, effectively making a long-term bet on CRV's recovery. This innovative solution differs from the recent Aave bailout, where the industry came together to raise funds to cover the bad debt. Instead, Curve's approach relies on market forces to determine the value of the distressed claims, potentially providing a more sustainable solution for addressing bad debt in the DeFi space.