Curve's founder, Michael Egorov, has introduced a market-driven approach to tackle approximately $700,000 in bad debt associated with LlamaLend, the platform's lending arm. Egorov's proposal involves creating a tokenized vault, allowing traders to buy and sell affected lender positions through a dedicated Curve pool. This method would provide trapped lenders with an exit strategy while enabling outside buyers to determine the value of the distressed claims. The bad debt stems from a crash on October 10, which resulted in over $19 billion in leveraged liquidations and saw CRV's value plummet.
The proposed pool would utilize Curve's Stableswap design, featuring a 1% swap fee and liquidity centered around 71% solvency. For trapped depositors, the pool offers a choice: wait for a CRV recovery or sell vault tokens at a discount.
Buyers, on the other hand, would be making a long-term bet on CRV's potential recovery, purchasing a claim that is partly backed and could increase in value if CRV recovers. The proposed solution comes as Aave faces a significant bad debt issue, with the industry responding through a coordinated bailout effort. Egorov's approach presents a different model, relying on market forces to determine the price of distressed claims rather than seeking a bailout.