Curve launches lending market Curve Lend to reduce user asset risk with soft liquidation

The stablecoin automated market maker (AMM) blue-chip protocol Curve officially launched its own lending market - Curve Lend yesterday. Different from mainstream lending models like Aave, Curve reduces the risk of liquidation for users through a unique liquidation mechanism and allows users to freely open lending markets for any token.

Introduction to Curve Lend

Curve Lend is a permissionless lending market where users can borrow or lend crvUSD with any asset through oracle prices, allowing for long or short positions on the asset.

Curve Lend Soft Liquidation: LLAMMA

Curve Lend utilizes Curve's unique liquidation algorithm LLAMMA. By placing the borrower's collateral into the AMM model, the system automatically performs partial liquidation through AMM exchange when the collateral's price fluctuates, reducing the risk of full liquidation due to significant price swings. The team refers to this mechanism as the soft liquidation mode.

Traditional lending markets like Aave require strict control over the types of tokens used as collateral to ensure sufficient liquidity and minimize default risks. Unlike traditional markets, Curve Lend, with LLAMMA's soft liquidation mechanism, inherently possesses liquidity, thus allowing for a wider range of collateral types and a more diverse market. The team states that it can lend out any token supported by LLAMMA using crvUSD.

However, soft liquidation has its drawbacks. Once triggered by price fluctuations, even if the collateral's price later returns to its original state, some funds are lost due to fees incurred through AMM transactions, resulting in more capital erosion compared to traditional lending markets.

Curve Lend Design Architecture

The entire Curve Lend system is similar to the protocol for minting crvUSD, with each token's lending market having a separate Controller, LLAMMA, and Vault.

The Controller serves as a chain interface where most user operations take place, such as creating loans, repaying loans, or managing existing loans.

LLAMMA is the AMM trading model holding the collateral assets and is crucial for executing soft liquidation.

The Vault is the protocol where lenders provide assets for lending, following the ERC-4626 standard to enhance composability and security. However, the contract does not actually hold any assets but is held by the Controller.

DeFi Development Strategy for Expanding Product Lines

Curve Lend is a new product built by the team using existing technological frameworks to enter the relatively mature lending market with innovative products. However, the market's acceptance of the advantages and disadvantages of soft liquidation remains to be seen.

Aside from the existing stablecoin trading protocol, Curve continues to launch stablecoins, other cryptocurrency trading protocols, lending protocols, DAO governance protocols, etc., to enhance its product line and meet users' multifaceted financial needs.

Curve's strategy is similar to Uniswap, Frax, Alpaca Finance, continuously introducing diverse financial services, gradually segmenting audiences, and creating specialized positioning for niche markets.

It can be predicted that blue-chip DeFi protocols will continue to deepen and broaden financial services to cater to niche markets for specific customer segments.