Curve’s Llamalend v2 Upgrade: DeFi Lending Revolution with Isolated Markets & LP Collateral

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Curve changes DeFi lending model with Llamalend v2 upgrade

Curve Finance has released an updated version of Llamalend on Optimism. This new version allows for lending markets that operate separately and lets users borrow using cryptocurrencies other than crvUSD. This is the first step in a larger upgrade to the lending system, with plans to launch it on Ethereum later this year.

Summary

  • Curve has launched Llamalend v2 on Optimism, expanding lending beyond crvUSD-only borrowing markets.
  • Users can now use Curve LP tokens as collateral while maintaining exposure to liquidity pool rewards.
  • The rollout starts with three isolated markets and a 250,000 OP incentive program ahead of an Ethereum mainnet launch.

Curve Finance has released an updated version of LlamaLend that eliminates a previous restriction. The original version only allowed borrowing of crvUSD. Now, with approval from the community, markets can be created with any supported asset acting as either collateral or the borrowed asset, offering much more flexibility.

Curve is launching on Optimism with three initial markets for users to trade: ETH for wstETH, wstETH for USDC, and WBTC for USDC.

When these three new markets open, users will be able to lend assets right away, but borrowing won’t be available initially. Borrowing will be enabled once a community vote—expected to take around seven days—sets borrowing limits.

LP tokens can now support borrowing activity

Curve has expanded its services beyond crvUSD and now allows users to use their LP tokens as collateral. This means liquidity providers can deposit these tokens, keep earning fees from their liquidity pools, and borrow against their positions all at the same time.

This update connects lending directly to how Curve’s exchange works. Curve also suggests this system could eventually work with other types of assets that earn rewards, like those held in vaults or used in strategies that offer a fixed rate of return.

Llamalend v2 continues to use the same liquidation system as the first version, launched in early 2024. Instead of closing a position at one specific price, the system uses a price range. As the price changes within this range, collateral is gradually converted into the borrowed asset.

As a researcher, I understand that Curve designed this system to lessen the risk of forced liquidations when the market gets tough. The goal was to give borrowers breathing room to better handle their investments during those stressful times.

Currently, risk management for each lending market is handled independently. Curve explains that each market operates with its own set of assets for collateral and borrowing, along with its own data feeds, borrowing restrictions, and safety settings. No borrowing is allowed initially; any debt accumulation requires a vote and approval from those governing the system.

LlamaRisk reviews markets before borrowing begins

To start, Curve explained that LlamaRisk will first check new assets offered as collateral and evaluate market conditions before any changes are approved by the community. The platform also highlighted that keeping markets separate limits the chance of problems in one area affecting others.

Curve is launching with a boost from the Optimism Foundation, which is providing 250,000 OP tokens. These tokens will be distributed over approximately two months to attract users and increase trading activity.

Curve’s documentation also explains that they’ll start rewarding early users with 100,000 OP tokens through a Merkl program when launching in new markets.

Curve decided to first launch on Optimism to test how its contracts worked, how well it connected with other platforms, and how users interacted with it – all in a safer setting – before offering borrowing features. They plan to launch on the main Ethereum network later this year.

This launch builds on Curve’s recent work in lending. As crypto.news previously covered, Curve created a system to recover funds from struggling loans on LlamaLend by turning them into assets that can be traded on the blockchain.

Michael Egorov, the founder of Curve, explained that this system is designed as an investment option and could potentially be used in other markets if it proves effective.

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2026-06-11 01:54