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- Curve founder Michael Egorov has devised a market-based approach to reverse DeFi’s bad debt by turning distressed assets into a tradable commodity.
- The decision comes as the collapse of the Kelp DAO is fueled by debate over recovery calculations, bailout scenarios and who should absorb losses as failures spread across protocols.
The latest DeFi crisis has re-opened an old debate in a new form. When bad debt spreads across protocols, who should fix it, and how?
Michael Egorov, the founder of Curve, is trying to change the conversation from donations to emergency returns. In the new an ideahe proposed a recovery model that would turn a distressed credit facility into an investment vehicle, allowing market participants to step in as investors instead of relying on emergency funds.
Egorov wants bad credit to be treated as a lending opportunity
The tone is simple, but the meaning is great. Instead of asking protocols, DAOs or friendly whales to plug holes directlyEgorov wants bad debt to be made into assets that investors can buy into, hoping for future returns.
He added that it is a way “that does not give money but makes money for everyone who participates.” Those words are important. It is an attempt to reform the response to problems in DeFi from moral responsibility to market promotion.
The proposed trial will begin with the CRV-long LlamaLend Curve market, which Egorov appears to be using as a pilot site before considering whether the model can be extended to other pressure applications.
Time is created by the collapse of KelpDAO
The proposal comes at a time when DeFi is already in the midst of a public debate about how to deal with the consequences of KelpDAO uses it. These developments have led to several protocols arguing over needs, pressure relief, financial support and whether environmental savings are sustainable or just masking structural weaknesses.
Egorov’s model tries to provide a third option. Not a complete withdrawal, and not a bailout either.
If this system works, it could give DeFi a stable way to solve problems without having to rely on people begging for more money every time the protocol hits a hole. That’s the theory, anyway. A more pressing question is whether investors would want exposure to bad credit in distressed markets unless rates are attractive enough to offset the risk.
This is where the idea stops being philosophical and becomes real. In DeFi, any attractive return model ultimately faces the same test: if someone wants to buy it.
