Curve Finance introduced the LLAMMA (Lending-Liquidating AMM Algorithm) mechanism as part of the crvUSD stablecoin system in 2023. This system implements soft liquidation, where collateral is distributed across multiple price bands. Instead of a total loss of position at a single threshold, the system gradually converts collateral into crvUSD as prices drop.
Users can configure the risk management granularity by adjusting the number of price bands from 4 to 50, with 10 bands being the default. Soft liquidation triggers when the oracle price enters the defined range, and the process is reversible if the market recovers. Hard liquidation only occurs when loan health reaches 0%.
Simulation data shows that typical losses during soft liquidation are under 0.1% per day. This differs from platforms like Aave or Compound, where a single transaction can wipe out a entire position. Borrowers maintain control over their loans, with options for partial or full repayment, or self-liquidation while health is above 0%.
The mechanism was tested during CRV token volatility in June 2024, which reduced on-chain liquidation pressure and prevented contagion spirals. In 2026, the progressive rollout of LlamaLend V2 expanded collateral types to include LP tokens and yield-bearing assets. This update led to a notable increase in borrowing growth in August 2026.
