Curve founder Michael Egorov has introduced a market-driven solution to address approximately $700,000 in bad debt associated with LlamaLend, Curve's lending platform. Egorov's proposal involves creating a tokenized vault to package affected lender positions, allowing traders to buy and sell them through a dedicated Curve pool.
This approach enables trapped lenders to exit their positions while permitting outside buyers to determine the value of the distressed claims. The plan is an alternative to Aave's recent bailout, where the industry came together to raise funds to cover bad debt. Instead, Curve's solution relies on market forces to resolve the issue, providing an option-like opportunity for buyers to bet on CRV's potential recovery.
The proposed pool will utilize Curve's Stableswap design, with a 1% swap fee and liquidity centered around 71% solvency. This will allow liquidity providers to earn swap fees and CRV incentives, while also giving trapped depositors the choice to either wait for a CRV recovery or sell their vault tokens at a discount.
The proposal has been presented as a potential pilot study, which, if successful, could be applied to similar situations at Curve or other protocols in the future.