Curve Finance has introduced Llamalend v2 on Optimism, marking a significant shift in its decentralized lending approach. This upgrade breaks away from the previous model by allowing isolated lending markets and non-crvUSD borrowing pairs, expanding the protocol’s flexibility. The initial phase features three isolated markets: ETH against wstETH, wstETH against USDC, and WBTC against USDC, all starting with zero borrow caps until governance approves debt limits.
A key innovation is the support for LP tokens as collateral. Liquidity providers can now deposit Curve LP tokens, continue earning trading fees, and borrow against those positions simultaneously. This integration ties lending more closely to Curve’s exchange infrastructure. The update also hints at future support for other productive collateral types, such as yield-bearing vault assets and principal tokens from fixed-yield strategies.
The liquidation model remains unchanged from v1, using a graduated liquidation range that converts collateral into borrowed assets as prices move through predefined levels. This design aims to reduce concentrated liquidation pressure during market stress and give borrowers more time to manage positions. Each market retains its own risk controls, including collateral asset, borrowed asset, oracle configuration, borrowing limits, and risk parameters.
For the rollout, LlamaRisk will review proposed collateral assets and oversee market assessments before governance approval. Isolated markets help contain risks to specific pairs. The launch includes a 250,000 OP token grant from the Optimism Foundation, with an initial incentives campaign distributing 100,000 OP tokens via Merkl across the first markets. Curve chose Optimism to observe contract behavior in a lower-risk environment, with an Ethereum mainnet launch expected later this year. This follows Curve’s recent bad-debt recovery framework, which converts distressed lending positions into tradable claims.