Curve's founder, Michael Egorov, has put forth a market-based solution to tackle approximately $700,000 in bad debt associated with LlamaLend, Curve's lending platform. The proposed plan involves packaging the affected lender positions into a tokenized vault, which would then be sold and traded through a dedicated Curve pool. This approach would provide trapped lenders with an exit option while enabling outside buyers to determine the value of the distressed claims.
The plan is in contrast to a recent bailout effort in the DeFi space, where Aave is facing up to $230 million in bad debt following an exploit. Egorov's proposal is designed to give lenders a way out while allowing the market to decide the value of the distressed claims, rather than relying on a bailout.
The tokenized claims would have an 'option-like' property, with their value potentially increasing if CRV recovers, but with some backing already in place. The proposal is seen as a pilot study, and if successful, it could be applied to similar situations in the future.