Curve founder Michael Egorov has proposed a market-based solution to resolve roughly $700,000 of bad debt sitting in LlamaLend, Curve’s lending market — a bid to fix losses without asking the DAO for a direct bailout. What went wrong The shortfall lives in LlamaLend’s CRV-long market, where users borrow Curve’s crvUSD stablecoin against CRV (Curve’s governance token). Those trades are essentially bets that CRV will hold or rise; if CRV plunges too fast, collateral can’t always be sold quickly enough to repay lenders. That’s what happened after the Oct. 10 market crash — sparked by a Truth Social post about tariffs — which produced more than $19 billion in leveraged liquidations in a single day. CRV-based positions on LlamaLend ended up roughly 70% backed, and some lender positions are now locked into a vault token that cannot be redeemed at full value. Egoro v’s proposal: a market, not a handout Rather than ask Curve DAO to cover the gap, Egorov proposed packaging the affected lender positions into a tokenized vault and listing them in a dedicated Curve pool. In his governance post he called it “a free-market based method of recovery with option-like payoff,” and explicitly invited the DAO to participate but said it was not required. How it would work - The vault token would be tradable through a Curve Stableswap-style pool with a 1% swap fee. - Liquidity would be centered around ~71% solvency (reflecting the current backing) instead of treating the token as $1 on the dollar, so pricing would reflect the present shortfall. - Trapped depositors could either hold on for a CRV rebound or sell their vault tokens at a discount to exit. - Buyers would effectively take a leveraged, option-like bet on CRV’s recovery: the token already holds crvUSD converted from CRV, so further CRV declines shouldn’t deepen the shortfall; if CRV rises past roughly $0.96 the conversion starts reversing, and full recovery is expected around $1.24. (CRV was trading near $0.23 at the time of the proposal.) Why Egorov thinks it’s reasonable Because the distressed positions already contain crvUSD converted from CRV, the downside is capped: if CRV keeps falling the vault’s backing won’t worsen, and if CRV recovers the vault gains value. That asymmetric payoff is what Egorov calls “option-like.” Liquidity providers in the new pool would earn swap fees and any CRV incentives the DAO decides to allocate. Admin fees would partially accrue in the distressed vault token itself; Egorov asked the DAO to hold those tokens rather than convert them, which would gradually transfer some of the bad debt onto Curve’s balance sheet through market activity. Context: an alternative to coordinated bailouts The timing highlights a split in DeFi’s approach to protocol losses. Earlier this month a LayerZero exploit involving unbacked rsETH led to an attacker depositing the fake rsETH as collateral on Aave, creating as much as $230 million in bad debt. The industry response was a coordinated bailout organized by “DeFi United,” which has so far raised roughly $160 million of about $200 million needed, with contributions from Mantle, Aave DAO, EtherFi, Lido, Aave founder Stani Kulechov and others; KelpDAO committed 2,000 ETH. Egorov is pitching Curve’s pool as a different model — build a market for distressed claims and let buyers set prices instead of pooling donations across the ecosystem. If successful, Egorov argues, the approach could be a repeatable tool for handling similar losses at Curve or other protocols — a market-based pilot that trades a one-time bailout for a tradable, price-discovery–driven resolution. Read more AI-generated news on: undefined/news