Curve founder Michael Egorov has unveiled a market-based plan to address approximately $700,000 in bad debt stemming from LlamaLend, the platform's lending arm. Egorov's proposal involves creating a tokenized vault to package affected lender positions, which can then be bought and sold through a dedicated Curve pool. This approach enables trapped lenders to exit their positions while allowing outside buyers to determine the value of the distressed claims. The plan is an alternative to seeking a bailout from Curve's DAO.
The bad debt originated from a crash on October 10, which resulted in over $19 billion in leveraged liquidations. LlamaLend's CRV-long market, where users borrow crvUSD against CRV, was impacted, leaving lenders with deposits backed by only about 70% of their stated value. Egorov's solution involves a tokenized vault and a Curve pool with a 1% swap fee, allowing liquidity providers to earn fees and potentially benefit from CRV's recovery.
The proposal is being presented as a market-driven alternative to the recent coordinated bailout of Aave, which faces up to $230 million in bad debt following an exploit. If successful, this approach could be applied to similar situations in the future, providing a new model for addressing bad debt in the DeFi space.