Curve Finance has rolled out Llamalend v2 on Optimism, kicking off the first phase of a major lending-system upgrade that’s headed to Ethereum mainnet later this year.
What’s new
- No crvUSD requirement: Unlike Llamalend v1, which required crvUSD as the borrowed asset, v2 allows markets to be created with supported assets on both sides of a pair (subject to governance). That opens borrowing markets beyond crvUSD.
- Isolated markets: Each market is isolated with its own collateral asset, borrowed asset, oracle setup, borrowing limits and risk parameters — reducing the chance that trouble in one market spills into others.
- LP tokens as collateral: Liquidity providers can now deposit Curve LP tokens as collateral, keep earning trading fees, and simultaneously borrow against their positions.
- Future collateral options: Curve says the framework can eventually add other productive collateral types, like yield-bearing vault assets and principal tokens from fixed-yield strategies.
- Liquidation range preserved: Llamalend v2 keeps the liquidation range mechanism introduced in early 2024. Instead of a single liquidation price, collateral is gradually converted into the borrowed asset across pre-set price bands, which Curve says mitigates concentrated liquidation pressure and gives borrowers more time to react.
Initial markets and governance controls
- Deployment starts on Optimism with three isolated markets: ETH wstETH, wstETH USDC, and WBTC USDC.
- All three will launch with borrow caps set to zero — users can deposit/lend, but borrowing will remain disabled until governance approves debt limits. Curve expects a DAO vote to set those limits and estimates the process will take about seven days.
- LlamaRisk will review proposed collateral assets and oversee market assessments before markets progress to governance votes.
Incentives and rollout plan
- Optimism Foundation has granted 250,000 OP to support the launch; Curve expects the incentives to be distributed over roughly two months to bootstrap liquidity and participation.
- Curve’s docs also note an initial incentives campaign distributing 100,000 OP via Merkl across the first markets.
- Curve chose Optimism to monitor contract behavior and integrations in a lower-risk environment before enabling borrowing. A mainnet rollout is planned for the second half of the year.
Context and follow-ups
- Llamalend v2 follows other Curve lending initiatives, including a bad-debt recovery framework that turns distressed positions into tradable on-chain claims. Curve founder Michael Egorov has described that recovery mechanism as an investment tool that could, if successful, be extended to other markets.
Why it matters
Llamalend v2 represents a shift from a crvUSD-centric lending model to a more flexible, market-specific approach that ties lending more closely to Curve’s exchange and liquidity infrastructure. The support for LP token collateral and isolated risk parameters could make Curve’s lending product more attractive to liquidity providers while aiming to contain systemic risk.
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