Curve founder Michael Egorov has introduced a market-driven approach to address approximately $700,000 in bad debt associated with LlamaLend, Curve's lending platform. Egorov's proposal involves creating a tokenized vault for the affected lender positions, 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 plan is an alternative to seeking a bailout from Curve's DAO, instead relying on market forces to resolve the issue.
The bad debt stems from a crash on October 10, which resulted in significant losses for lenders in the CRV-long market. Egorov's proposal aims to provide a solution that not only addresses the current issue but also offers a potential model for resolving similar problems in the future. The proposed pool would utilize Curve's Stableswap design, with a 1% swap fee and liquidity centered around 71% solvency.
This would allow buyers to purchase the distressed token at a discount, effectively making a long-term bet on CRV's recovery. The proposal comes at a time when the DeFi industry is grappling with the issue of bad debt, with Aave facing a significant shortfall following an exploit. Egorov's approach presents a different model, one that relies on market forces rather than a coordinated bailout effort.