How Curve's soft liquidation model lets borrowers survive market drawdowns
Curve Finance's LLAMMA protocol utilizes a 'soft liquidation' model that allows borrowers to survive market volatility by gradually converting collateral rather than triggering immediate, permanent sales. This mechanism enables positions to recover if asset prices rebound, offering a more flexible alternative to traditional liquidation methods.
Why it matters
This innovation in decentralized finance (DeFi) provides a more resilient framework for lending protocols, potentially reducing systemic risk during market downturns.
That changes what liquidated means. On most lending platforms, crossing a predetermined prices triggers a sale. But Curve gauges how long a borrower stays inside a “danger zone” to calculate how collateral gets converted along the way and whether the position makes it back out.
Data shared with CoinDesk showed 704 cases of soft liquidation across 602 borrower addresses. The median lasted 14.5 days and a quarter ran at least 38.9 days, with some positions sitting inside the liquidation range for months. Of those, 476 began during the first half of 2026.
That is not how liquidation normally works. A borrower puts up ether or another token as collateral, its price falls past a set level, and part of that collateral is sold to repay the loan. On Aave or Compound, what gets sold does not come back if prices bounce afterwards.
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