Curve Finance has launched a soft liquidation model called LLAMMA (Lending-Liquidating AMM), which changes the approach to liquidation in DeFi. Instead of immediately writing off collateral when the price falls below a threshold, the system distributes collateral across multiple price ranges and gradually converts it into the stablecoin crvUSD as the market moves against the borrower. If the price recovers, the conversion is reversible — the collateral is returned to its original form. Hard liquidation only occurs when the loan health drops to 0%.
When a loan is opened, collateral is distributed across bands: 10 by default, but users can configure between 4 and 50. Soft liquidation begins when the oracle price enters a defined range. According to simulations, typical losses during soft liquidation amount to less than 0.1% per day, whereas on platforms like Aave or Compound a borrower can lose their entire position in a single transaction. Borrowers retain autonomy: as long as the loan health remains above 0%, they can partially or fully repay the debt or perform self-liquidation. The mechanism was stress-tested in June 2024 during CRV token volatility: soft liquidation enabled over-the-counter position closures and significantly reduced on-chain pressure, preventing the spread of the crisis. In 2026, LlamaLend V2 was launched, expanding collateral support to LP tokens and yield-bearing assets. Following the V2 launch in August 2026, the platform demonstrated significant growth in borrowing activity.
The LLAMMA approach is structurally closer to traditional gradual margin call mechanisms, which may facilitate institutional adoption. However, as Curve's documentation emphasizes, continuous monitoring remains essential: during a prolonged drawdown, loan health can reach 0%, at which point hard liquidation will occur.
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This material is prepared exclusively for informational purposes and does not constitute financial advice or a recommendation.