PANews reported on May 1 that Curve Finance issued an official statement saying that following the market crash in October 2025, some of Curve Finance's lending markets experienced bad debt issues. Among them, the Llamalend fund pool of CRV-long was impacted by sharp price fluctuations and liquidity contraction, and some depositors faced withdrawal restrictions and asset losses.
To address this issue, Curve is introducing a "recovery path" based on an on-chain market mechanism, allowing affected users to choose between different strategies: sell their claims directly to exit, continue holding and wait for potential recovery, or provide liquidity to earn fees and incentives.
The core of this mechanism is to establish a trading pool between crvUSD and the token of damaged debt, allowing bad debt to be priced and liquidated in the market, thus providing users with an immediate exit channel, rather than relying solely on the final liquidation result. Curve states that this design does not eliminate losses or guarantee recovery, but rather reflects risk and recovery expectations gradually through market mechanisms.
Model data shows that as CRV prices recover, the system's solvency will gradually improve, with partial recovery beginning in the $0.957 range and a modeled full recovery potentially achieved in the $1.242 range (not guaranteed).
Furthermore, if the governance layer allocates rewards to the pool through the veCRV incentive mechanism, it will help improve liquidity depth, improve exit conditions, and enhance market pricing efficiency.
Curve also stated that the incident has prompted it to strengthen the design of risk parameters, market standards, and risk warning mechanisms in Llamalend V2 to enhance the overall robustness of the future lending market.
