Curve founder Michael Egorov has put forth a market-based solution to address approximately $700,000 in bad debt associated with LlamaLend, Curve's lending platform. Egorov's proposal involves creating a tokenized vault for affected lender positions, which can then be bought and sold through a dedicated Curve pool. This approach aims to provide trapped lenders with an exit option while allowing outside buyers to determine the value of the distressed claims.
The bad debt stems from a crash on October 10, which saw over $19 billion in leveraged liquidations and resulted in lenders in the CRV-long market being left with deposits backed by only about 70% of their stated value. Egorov's plan is in contrast to the recent Aave bailout, where the industry came together to raise funds to cover bad debt. Instead, Curve's proposal relies on market forces to resolve the issue, potentially providing a new model for addressing similar situations in the future.