Curve's founder, Michael Egorov, has put forth a market-driven proposal to address approximately $700,000 in bad debt associated with LlamaLend, Curve's lending platform. The plan involves packaging the affected lender positions into a tokenized vault, allowing traders to buy and sell them through a dedicated Curve pool.
This approach gives trapped lenders an exit option while enabling outside buyers to determine the value of the distressed claims. The goal is to provide a market-based solution, contrasting with the recent bailout of Aave. The bad debt resulted from a market crash, which saw over $19 billion in leveraged liquidations, with lenders in the CRV-long market left with deposits backed by about 70% of their stated value.
Egorov's proposal involves creating a tokenized vault and letting traders buy and sell the distressed claims, with the aim of giving lenders a way out and allowing buyers to decide the value of the claims. The proposal is seen as an alternative to the recent bailout of Aave, which faced up to $230 million in bad debt following an exploit. Curve's approach is market-driven, allowing buyers to determine the price of the distressed claims, rather than relying on a coordinated bailout effort.