Curve founder Michael Egorov has introduced a market-based approach to address approximately $700,000 in bad debt associated with LlamaLend, the platform's lending arm. In a governance post, Egorov outlined a plan that enables trapped lenders to sell tokenized claims on deposits, effectively offering buyers an option-like opportunity to bet on CRV's potential recovery. The proposed solution involves packaging affected lender positions into a tokenized vault, which would then be made available for purchase and sale through a dedicated Curve pool.
This approach aims to provide an exit strategy for lenders while allowing outside buyers to determine the value of the distressed claims. The bad debt in question stems from a significant crash on October 10, which resulted in over $19 billion in leveraged liquidations. The incident led to a scenario where lenders in the CRV-long market were left with deposits backed by only about 70% of their stated value. Egorov's proposal seeks to address this issue by creating a market for these distressed claims, thereby allowing buyers to decide their worth.
The plan is distinct from the recent Aave bailout, where the industry came together to raise funds to cover bad debt. Instead, Curve's approach would establish a market-driven solution, enabling buyers to purchase and sell tokenized claims, with the goal of providing a more sustainable and market-based fix for the bad debt.