Curve founder pitches market-based fix for $700K LlamaLend bad debt using tokenized claims

Curve founder Michael Egorov proposed a market-based recovery plan for about $700,000 of bad debt on LlamaLend, Curve’s lending market. Instead of asking Curve DAO to cover the shortfall, the plan would package the affected lender positions into a tokenized vault sold via a dedicated Curve pool, letting outside buyers set the distressed claim price. The debt stems from the Oct. 10 crash after tariff news, when liquidation protection on LlamaLend moved too fast. In the CRV-long market, some lenders were left with deposits backed at roughly 70% of stated value, leaving positions effectively trapped. Egorov argues the loss is not open-ended because the distressed vault already holds crvUSD converted from CRV. If CRV rises above about $0.96, conversion should start reversing; full recovery is estimated around $1.24. The proposed Curve pool would use Stableswap-style pricing with a ~1% swap fee and liquidity centered around ~71% solvency (not 1:1), creating an “option-like” payoff. For trapped lenders, they can wait for CRV recovery or sell the vault tokens at a discount. For buyers, the token becomes a long-term bet on CRV with partial backing already in place, potentially supported by swap fees, chosen CRV incentives, and admin-fee accrual in the distressed token. The article contrasts this approach with the recent Aave bad-debt episode: an rsETH exploit led to up to ~$230M Aave bad debt, handled through an industry bailout coordinated via DeFi United.