Curve founder Michael Egorov has put forth a proposal to address approximately $700,000 in bad debt associated with LlamaLend, Curve's lending platform, by creating a market-based solution. The 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 strategy while allowing outside buyers to determine the value of the distressed claims.
The tokenized claims offer an option-like bet on CRV's recovery, with the potential for buyers to benefit if CRV's value increases. The proposed pool would utilize Curve's Stableswap design, with a 1% swap fee and liquidity centered around 71% solvency. This market-driven solution is presented as an alternative to traditional bailouts, such as the one currently underway for Aave, which has been affected by a significant exploit.
By creating a market for distressed claims, Curve's proposal could provide a new model for addressing bad debt in the DeFi space.