Curve founder Michael Egorov has pitched a market-based solution to resolve roughly $700,000 in bad debt tied to LlamaLend — Curve’s on‑chain lending market — proposing traders, not a DAO bailout, decide the outcome. What went wrong The loss sits in LlamaLend’s CRV‑long market, where users borrow Curve’s stablecoin crvUSD against the protocol token CRV. That trade is essentially a bet that CRV will hold value or recover; if CRV crashes faster than collateral can be sold, lenders can be left short. That scenario played out during the October 10 market shock — a single day that triggered more than $19 billion in leveraged liquidations — when fast price moves and high gas costs prevented some liquidations from completing. As a result, some lender positions are now only about 70% backed. Egoro v’s fix: a tradable vault token and a dedicated pool Instead of asking Curve DAO to absorb the shortfall, Egorov wants to package the affected lender positions into a tokenized vault and list those tokens in a dedicated Curve pool. Participation is voluntary — Curve DAO is “invited but not required,” he said — and the pool would use Curve’s Stableswap design with a 1% swap fee and liquidity centered around roughly 71% solvency (rather than assuming the token is $1 on the dollar). Why this could work Egoro argues the loss is capped because collateral has already been converted into crvUSD — further drops in CRV won’t make the backing materially worse. If CRV rises, the conversion can reverse: Egorov’s post notes recovery begins at about $0.96 and would be complete near $1.24. (CRV was trading near $0.23 at the time of writing.) That asymmetric payoff — partial backing today with potential upside if CRV recovers — is what Egorov describes as an “option‑like” instrument. Buyers effectively take a long CRV recovery bet at a discount; trapped depositors can either keep waiting or sell the vault tokens to exit at current market pricing. Mechanics and incentives The proposed pool would price the distressed token closer to its present backing instead of par value. Liquidity providers would earn swap fees and any CRV incentives Curve’s DAO opts to allocate. Admin fees would partly accumulate in the distressed vault token itself; Egorov has asked the DAO to retain those tokens (rather than immediately convert them), which would gradually offload some bad debt onto Curve’s balance sheet through trading activity. Why this matters for DeFi Egorov frames the approach as an alternative to cross‑protocol rescue efforts. Earlier this month, the industry rallied to patch up Aave after an attacker exploited Kelp DAO’s LayerZero bridge and supplied unbacked rsETH as collateral, creating up to about $230 million in bad debt for Aave. That effort — led by DeFi United and backstopped by Aave‑linked organizations and large contributors — has raised roughly $160 million so far toward an estimated $200 million need. Rather than “passing the hat,” Egorov’s model would build a market for distressed claims and let buyers price risk. If successful, he suggests, the design could be applied to other protocols facing similar liquidations or bridge‑exploit fallout. Bottom line The proposal is a small, market‑driven pilot for resolving a concentrated, capped bad‑debt position without a direct DAO bailout. It hands pricing power to market participants, gives trapped lenders an exit option, and offers buyers a leveraged bet on CRV’s recovery — all while keeping Curve DAO’s involvement optional. Whether traders will provide the liquidity and price discovery needed remains to be seen. Read more AI-generated news on: undefined/news