After Black April DeFi 28 hacking incidents, Curve builds an on-chain junk bond market: affected users can sell their claims at a discount

A crypto market crash on October 10, 2025 sent multiple DeFi lending protocols into turmoil. In the Curve ecosystem, the lending protocol Llamalend was also hit: as parts of the market adopted high-volatility collateral, it accumulated bad debt amid sharp price drops and rapidly deteriorating liquidity. Among them, the CRV-long Llamalend market was one of the affected markets, with some lenders still facing issues such as withdrawal restrictions and uncertain capital recovery—problems that have dragged on and prolonged timelines.

In the real world, “junk bond” investors like Oaktree Capital typically step in when a company faces financial pressure and when its bonds or loans trade at steep discounts. They buy damaged claims that the market is unwilling to hold, taking on time costs, legal procedures, and uncertainty around recovery—waiting to earn returns after restructuring, liquidation, improved asset prices, or a recovery in the company’s operations.

Hacker incidents are frequent, and Curve prices DeFi debt claims

For affected DeFi users, the real difficulty isn’t only whether they can ultimately recover funds, but also that during the waiting period, the damaged debt claims in hand have almost no liquidity and are hard for the market to clearly price. Curve’s recent proposal, to some extent, mirrors the logic of distressed debt and non-performing debt trading from traditional finance, brought on-chain: it doesn’t promise that everyone will be fully rescued, but instead turns damaged debt claims into an asset that can be bought and sold, priced at a discount, and waited on for recovery.

Curve’s approach this time is like a DeFi version of the distressed debt market. It’s not that a single fund privately buys bad debts, nor that the protocol parties directly announce compensation. Instead, it uses Curve’s own AMM infrastructure to create a dedicated liquidity pool composed of crvUSD and cvcrvUSD, enabling damaged debt claims to be publicly traded on-chain.

DeFi hacked users can sell debt claims at a discount

crvUSD is Curve’s decentralized stablecoin; cvcrvUSD is the vault share token representing affected CRV-long market lenders’ debt claims. In other words, what affected users hold isn’t a certificate that has completely lost meaning, but rather an on-chain debt claim on the distressed lending market.

Through the crvUSD/cvcrvUSD pool, these claims can be priced at a discount by the market. Lenders who urgently need liquidity can choose to sell cvcrvUSD in exchange for more liquid crvUSD; those willing to wait can continue holding the claims, betting on a future rise in CRV price and a narrowing of the bad debt shortfall; participants with higher risk tolerance can also provide liquidity to earn trading fees and potentially receive future CRV incentives.

This is the core logic behind distressed asset investing: the same damaged debt claim is a burden to those who need to exit quickly, but it could be a discounted asset to those willing to take risks and wait for a time repair. The difference is that in traditional finance, distressed debt trading often happens between funds, banks, courts, and creditors’ committees; while Curve is trying to move this to the chain, where AMMs, governance incentives, and market participants jointly determine the price.

Who acts as the DeFi junk bond investor: the on-chain Oaktree Capital

However, this proposal doesn’t mean Curve is guaranteeing the recovery of all losses, nor does it mean the bad debt has already been wiped out. It’s more like letting the market decide what these claims are actually worth. When the market believes the odds of future recovery are high, the discount on cvcrvUSD may shrink; when the market believes recovery chances are low, time costs are too high, or liquidity is insufficient, the discount could widen.

From this perspective, Curve doesn’t deal with bad debt in the traditional way of “platform compensation.” Instead, it attempts to build an on-chain distressed debt market. It gives affected users another exit route, and offers capital willing to take risks the opportunity to enter and take over discounted debt claims. For lenders who need to leave quickly, it may mean getting liquidity by selling at a discount; for buyers or liquidity providers willing to wait for recovery, it means taking on risk in exchange for potential returns.

This design also aligns with DeFi’s original logic: the problem, the debt claims, the discount, liquidity, and recovery expectations are all public on-chain, without needing to wait for a centralized platform to announce a single settlement outcome. The market can judge for itself who is willing to sell at a discount, who is willing to bear waiting and recovery risk, and who is willing to provide liquidity to the distressed market.

If Oaktree Capital represents distressed debt investment specialists in traditional finance, then what Curve is trying to do this time is to move the act of “pricing distressed debt” from boardrooms, courtrooms, and fund quotation sheets into AMMs, on-chain governance, and public markets.

For affected users, this is not a perfect solution, nor a guaranteed rescue plan for recovery—but at least it allows previously stuck debt claims to become a selectable market again. For DeFi, this is also a harsher yet more transparent reality: bad debt doesn’t disappear just because it’s on-chain, but being on-chain makes bad debt visible, tradable, and re-priced by the market.

This article: After the Black April DeFi 28 hacking incidents, Curve builds an on-chain junk bond market: damaged users can sell debt claims at a discount. First appeared in: Chain News ABMedia.