Curve founder Michael Egorov has put forth a market-based solution to address approximately $700,000 in bad debt associated with LlamaLend, Curve's lending platform. The proposed plan involves packaging the 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 resulted from a recent market crash, which led to a significant decline in CRV's value, causing lenders in the CRV-long market to be left with deposits backed by only about 70% of their stated value.
Egorov's proposal seeks to create a market for these distressed claims, offering buyers a chance to bet on CRV's potential recovery. The plan is distinct from the recent Aave bailout, where the industry came together to raise funds to address bad debt.
Instead, Curve's approach relies on market forces to determine the value of the distressed claims, providing a potentially more sustainable solution for addressing bad debt in the DeFi space.