Curve founder Michael Egorov has introduced a market-based approach to address approximately $700,000 in bad debt associated with LlamaLend, Curve's lending platform. Egorov's proposal involves packaging the affected lender positions into a tokenized vault, which would then be tradable through a dedicated Curve pool, allowing trapped lenders to sell their claims at a discount and outside buyers to purchase them, essentially placing a bet on CRV's potential recovery.
This approach differs from the recent Aave bailout, as it relies on market forces to resolve the bad debt rather than seeking a coordinated industry response. The proposed pool would utilize Curve's Stableswap design, with a 1% swap fee, and liquidity centered around 71% solvency, providing a unique investment opportunity for buyers and an exit strategy for lenders.
According to Egorov, the tokenized claims have an 'interesting option-like property' on CRV's recovery, with some backing already in place, making it an attractive option for those looking to bet on the token's potential growth. The success of this pilot study could potentially be applied to similar situations at Curve or other protocols, providing a new model for resolving bad debt in the DeFi space.