Curve Finance founder Michael Egorov has proposed a market-based fix for roughly $700,000 in bad debt sitting in LlamaLend’s CRV-long market. The shortfall stems from last year’s liquidation of his large CRV-backed borrowing positions, which left a residual gap after most of the debt was repaid.
The new proposal aims to clear that remaining bad debt without forcing the Curve DAO or users to incur an immediate loss. Instead, it leans on incentives and market pricing so external capital can step in over time and gradually de-risk the system.
How the New Pool Would Work
Egorov’s idea centers on creating a dedicated Curve StableSwap pool that holds special “Vault tokens” tied to the underwater LlamaLend positions. These tokens represent claims on the collateral and debt in the CRV-long market. Investors would be able to buy Vault tokens at a discount, effectively taking on some risk in exchange for potential upside if CRV recovers.
When the price of CRV rises, the pool could automatically use liquidity to “de-liquidate” portions of the bad-debt position. That means it would close out distressed loans and restore the vaults’ health, shrinking the gap over time. If CRV prices fall instead, the mechanism pauses these de-liquidations to avoid deepening the hole.
Using Market Forces Instead of Bailouts
The proposal’s main goal is to rely on market forces instead of a direct bailout from Curve’s treasury. By selling discounted Vault tokens, it aims to attract outside traders who want to bet on CRV’s long-term value. As prices improve, the protocol can gradually reduce bad debt rather than use a one-time governance payment.
Supporters say this makes the incentives clearer, since buyers know they are taking a risk in exchange for the possibility of profit. The design also stays transparent on-chain, so anyone can see how much bad debt remains and how the pool responds to CRV’s price.
The plan still needs more discussion and a formal governance vote before launch. Community members are debating the pool size, the right discount for Vault tokens, and how to split risk between speculators and existing users.
If approved, the system could become a model for handling future bad debt in DeFi lending markets. LlamaLend and similar protocols may use versions of it to convert distressed positions into tradable claims rather than leaving them as permanent losses on protocol balance sheets.
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