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Curve launches a "bad debt" recovery mechanism, allowing damaged claims to be exited through trading or participate in the restoration process
Curve Finance has officially announced it is introducing a "bad debt" recovery mechanism based on on-chain market dynamics. This mechanism allows CRV users affected by bad debts in certain lending markets to choose from different recovery strategies: directly selling their claims to exit, holding on to wait for potential recovery, or providing liquidity to earn fees and incentives. The core of this mechanism is establishing a trading pool between crvUSD and the damaged claim tokens, enabling the bad debt claims to be priced in the market and form liquidity, thereby providing users with an immediate exit channel, rather than relying solely on final liquidation outcomes.According to reports, following the crypto market crash in October last year, certain lending markets under Curve Finance experienced bad debt issues. Some liquidity pools were impacted by drastic price fluctuations and liquidity contraction, causing some depositors to face withdrawal restrictions and asset losses.Curve stated that the recovery mechanism will not eliminate losses or guarantee recovery, but will gradually reflect risk and recovery expectations through market-based methods. Furthermore, if the governance layer allocates rewards through the veCRV incentive mechanism, it will help enhance liquidity depth, improve exit conditions, and strengthen market pricing efficiency.
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Curve Founder Proposes Market-Based Model to Recover DeFi Bad Debt
Curve founder Michael Egorov has proposed a method to recover bad debt in lending protocols by converting impaired positions into tradable investment products. The pilot for this solution is Curve's own CRV-long LlamaLend market, which generated approximately $700,000 in bad debt in October 2025. Michael Egorov has established a Curve Stableswap pool with approximately 71% solvency, allowing trading of impaired vault tokens. Traders can buy at a discount, liquidity providers can earn fees, and the DAO can accumulate impaired tokens through management fees. The community’s feedback on this proposal has been mixed, with some users questioning whether impaired positions lacking immediate returns can attract buyers.
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The Curve team proposed restoring the bad debt in the CRV-long LlamaLend market via a special liquidity pool.
The Curve Team has proposed a recovery plan for the bad debt in the CRV-long LlamaLend market. This market incurred approximately 70% collateralization and a funding shortfall of roughly $700,000 following the incident on October 10, 2025. The proposal outlines establishing a special Curve stableswap pool that enables redemption of treasury tokens, thereby introducing market-driven capital into the recovery process—without requiring permission or off-chain agreements. According to the proposal, if CRV’s price rises, the bad debt positions can be gradually recovered through decentralized liquidation and hard liquidation; if CRV’s price falls, the collateralization level of treasury deposits will not deteriorate further. michwill has also requested that Curve DAO approve a gauge for this pool and retain protocol fees received in the form of treasury tokens.
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Curve Finance Suspends LayerZero Cross-Chain Bridging Functionality in Response to rsETH Infrastructure Hack
According to an official announcement from Curve Finance, due to a hacker attack on the rsETH LayerZero infrastructure, Curve Finance has suspended its LayerZero infrastructure for security reasons, pending further investigation into the root cause before resuming operations. This suspension affects the following: cross-chain bridging of CRV tokens from BNB Chain, Sonic, Avalanche, Fantom, Etherlink, and Kava (chains using native bridges remain unaffected), as well as the crvUSD fast bridge functionality (the L2 slow bridge remains fully operational). Meanwhile, KelpDAO is also reported to have suffered a vulnerability exploit involving approximately $291 million; the exact extent of losses is still under investigation.
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Curve Finance Suspends LayerZero Infrastructure
According to an official announcement, Curve Finance has suspended its LayerZero infrastructure as a precautionary measure following a hacker attack on rsETH’s LayerZero infrastructure, pending further investigation into the root cause. This adjustment affects cross-chain CRV bridging initiated from chains including BNB, Sonic, Avalanche, Fantom, Etherlink, and Kava; bridging from other chains remains unaffected and continues to use native bridges. Additionally, the crvUSD fast bridge is impacted, while the slower bridge to L2s remains fully operational.
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