- Curve founder Michael Egorov has proposed a market-based mechanism to recover DeFi bad debt by turning distressed positions into an investable product.
- The idea arrives as the Kelp DAO fallout intensifies debate over recovery math, bailout optics and who should absorb losses when failures spread across protocols.
DeFi’s latest crisis has reopened an old argument in a new form. When bad debt spills across protocols, who should fix it, and how?
Michael Egorov, the founder of Curve, is trying to shift that conversation away from donations and emergency bailouts. In a new proposal, he suggested a recovery model that would turn distressed debt positions into a tradable investment vehicle, allowing market participants to step in as investors rather than relying on ad hoc rescue capital.
Egorov wants bad debt treated as an investable opportunity
The pitch is fairly simple, though the implications are wider. Instead of asking protocols, DAOs or friendly whales to plug holes directly, Egorov wants bad debt to be packaged into something investors can buy into, with the expectation of future recovery value.
He described it as a mechanism “which is not a donation but an investment vehicle for everyone who participates.” That wording matters. It is an attempt to reframe crisis response in DeFi from moral obligation to market incentive.
The proposed test case would begin with Curve’s own CRV-long LlamaLend market, which Egorov appears to be using as a pilot environment before considering whether the model could be extended to other stressed situations.
The timing is shaped by KelpDAO’s fallout
The proposal lands at a moment when DeFi is already deep in public debate over how to handle the aftermath of the KelpDAO exploit. That incident has dragged multiple protocols into arguments over shortfalls, forced unwinds, treasury support and whether ecosystem rescues are stabilizing or simply masking structural weaknesses.
Egorov’s model tries to offer a third path. Not pure liquidation, and not a bailout either.
If the mechanism works, it could give DeFi a more standardized way to deal with distressed positions without depending on public pleas for capital each time a protocol blows a hole in the system. That is the theory, anyway. The harder question is whether investors will actually want exposure to bad debt in stressed markets unless the pricing is attractive enough to compensate for the risk.
That is where the proposal stops being philosophical and starts being real. In DeFi, every elegant recovery model eventually faces the same test: whether anyone is willing to buy it.
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