Curve founder Michael Egorov has suggested a market-driven approach to resolve approximately $700,000 in bad debt associated with LlamaLend, Curve's lending platform. In a governance post, Egorov outlined a plan that allows affected lenders to package their positions into a tokenized vault, which can then be bought and sold through a dedicated Curve pool.
This approach invites outside buyers to determine the value of the distressed claims, providing an exit strategy for trapped lenders. The bad debt stems from a crash on October 10, which saw over $19 billion in leveraged liquidations and resulted in lenders holding deposits backed by about 70% of their stated value. Egorov's proposal aims to create a market for these distressed claims, allowing buyers to bet on CRV's potential recovery while giving lenders an opportunity to exit their positions. The plan is in contrast to the recent Aave bailout, where the industry came together to raise funds to cover bad debt.
Egorov's approach could potentially serve as a model for addressing similar situations in the future.