According to Curve Finance, the protocol has introduced a market-based bad debt recovery mechanism allowing CRV holders affected by defaults in certain lending markets to choose from multiple recovery strategies: directly selling debt claims to exit, holding to await potential repairs, or providing liquidity to earn fees and incentives. The mechanism establishes a trading pool between crvUSD and impaired debt tokens, enabling bad debts to be priced and gain liquidity in the market rather than relying solely on final liquidation outcomes. The move follows defaults that emerged in some Curve lending markets following the market crash in October 2025, which triggered price volatility and liquidity constraints affecting certain pools. Curve emphasized that the recovery mechanism will not eliminate losses or guarantee recovery, but rather reflect risks and repair expectations through market mechanisms.
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