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      Curve Finance Introduces Soft Liquidation Model to Enhance Borrower Protection

      Curve Finance has launched a new soft liquidation model called LLAMMA, designed to improve borrower protection in decentralized finance (DeFi). This innovative mechanism, part of Curve's crvUSD stablecoin system, allows for a gradual conversion of collateral across multiple price bands rather than a sudden liquidation at a single threshold. This approach aims to mitigate the risks associated with traditional hard liquidation methods, which can result in borrowers losing their entire positions in a single transaction.

      Under the LLAMMA model, collateral is distributed across a default of ten price bands, with options for users to adjust this range between four and fifty bands. Liquidation begins only when the market price enters the borrower's defined range, allowing for incremental conversion of collateral into crvUSD. If market conditions improve, the process can reverse, returning collateral to its original form. Simulations indicate that typical losses during this soft liquidation process are under 0.1% per day, significantly less than the losses seen in hard liquidation systems.

      The LLAMMA mechanism was stress-tested during a market event in June 2024, demonstrating its effectiveness in reducing liquidation pressure on-chain. The recent rollout of LlamaLend V2 in 2026 has further expanded the types of collateral accepted, including liquidity provider tokens and yield-bearing assets, which has led to increased borrowing activity. This model not only enhances risk management for individual borrowers but also addresses concerns for institutional participants, making on-chain lending more appealing by aligning it with traditional finance's gradual margin call practices.

      While the LLAMMA model offers significant advantages, Curve Finance cautions that borrowers must remain vigilant, especially in volatile markets, as neglecting their positions can still lead to hard liquidation if loan health reaches zero.

      © 2026 KLEA News. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

      Source: KLEA News

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