The founder of the DeFi protocol Curve Finance, Mikhail Egorov, has introduced a solution for "bad" debts. He proposed converting deficit positions into tradable investment instruments.
The pilot project will be the lending market LlamaLend. In October 2024, it faced a hopeless debt of $700,000, preventing some users from fully withdrawing their funds.
Egorov believes that problematic assets in the pool are not worthless. Their value depends on the price of the CRV token: if the coin rises, the debt can be settled through liquidations. According to the developer, these positions resemble options with limited risk.
To implement this idea, Egorov has already secured liquidity in the Curve Stableswap pool. Users can exchange "stuck" tokens at a discount or become liquidity providers to earn fees while waiting for the market to recover.
The proposed model eliminates the need for direct protocol recovery via the DAO treasury. Instead, the free market should fill the balance gap. Traders buy the debt at a discount, arbitrageurs seek profit, and liquidity providers receive rewards.
This initiative emerged amid discussions about the implications of the Kelp DAO hack, which posed risks for Aave. While other projects are discussing emergency loans and direct compensation, Egorov advocates for the use of market mechanisms.
Community members have responded to the idea with skepticism. Some users noted that it would be challenging to find buyers for such assets due to the lack of immediate returns. Critics also doubt that professional investors would be interested in the instrument without additional subsidies from the Curve DAO.
In April, protocols affected by the Kelp attack formed a support fund that raised over 102,000 ETH. This amount nearly covered the damage caused by the hack—around $290 million.