Curve's founder, Michael Egorov, has put forth a market-based solution to tackle approximately $700,000 in bad debt associated with LlamaLend, the platform's lending arm. Egorov's proposal involves creating a tokenized vault for affected lender positions, which can then be bought and sold through a dedicated Curve pool, thereby providing trapped lenders with an exit option while allowing outside buyers to determine the worth of these distressed claims. This approach contrasts with the recent bailout of Aave, where the industry collectively raised funds to address bad debt.
Instead, Curve's solution relies on market forces to resolve the issue, potentially setting a precedent for similar situations in the future. The proposed pool would utilize Curve's Stableswap design, featuring a 1% swap fee and liquidity centered around 71% solvency, effectively pricing the distressed token closer to its current backing. For buyers, this presents an opportunity to make a long-term bet on CRV's recovery, with the token possessing an 'interesting option-like property' that could increase in value if CRV prices rise. The proposal is currently under consideration, with the potential to serve as a pilot study for addressing similar challenges at Curve or other protocols.