Curve Finance has rolled out Llamalend v2 on Optimism, starting a broader upgrade of its DeFi lending system before a planned launch on the Ethereum mainnet later this year. The biggest change is that lending markets are no longer restricted to borrowing against crvUSD, a limitation that shaped the first version of the protocol.
Under the new design, supported assets can appear on both sides of a lending pair once governance approves a market. That opens the door to collateral and borrowed assets being selected without requiring crvUSD in the structure. In practice, Curve is shifting Llamalend from a crvUSD-centered model toward a more flexible market framework.
Three isolated markets go live first, with borrowing still paused
The initial deployment includes three isolated markets on Optimism: ETH against wstETH, wstETH against USDC, and WBTC against USDC. Even so, all three start with borrow caps set at zero. Users can supply assets from day one, but borrowing will remain unavailable until the DAO approves debt limits through a governance vote that Curve expects to take about seven days.
Curve said risk controls remain separated for each market. Every lending pair carries its own collateral asset, borrowed asset, oracle setup, borrowing limits, and risk parameters. The isolated structure is meant to limit the spread of problems between unrelated markets.
LP tokens can now be used as collateral
Curve also added support for LP tokens as collateral. That lets liquidity providers deposit Curve LP tokens, keep earning trading fees from the underlying pools, and borrow against the same positions at the same time. The change ties lending much more closely to Curve’s exchange layer, turning LP positions into active borrowing collateral instead of passive pool exposure.
According to the protocol, the same framework could later be extended to other productive collateral types, including yield-bearing vault assets and principal tokens used in fixed-yield strategies. Curve did not attach a separate rollout date to those possible additions.
Version 2 keeps Curve’s range-based liquidation system
Llamalend v2 keeps the liquidation mechanism introduced in early 2024. Instead of liquidating a position at one trigger price, the system converts collateral into the borrowed asset gradually as prices move through predefined bands. Curve has said this approach was designed to reduce concentrated liquidation pressure during stressed market conditions and give borrowers more time to react.
Before borrowing is enabled, LlamaRisk will review proposed collateral assets and assess markets before they proceed through governance. Curve said the choice to launch first on Optimism was deliberate, allowing the team to observe contract behavior, integrations, and user activity in a lower-risk environment before opening on Ethereum mainnet.
Launch comes with 250,000 OP in support
Curve said the rollout is backed by a 250,000 OP grant from the Optimism Foundation. Those incentives are expected to be distributed over roughly two months to encourage liquidity and user participation. Curve’s technical documentation also says an initial campaign will distribute 100,000 OP through Merkl across the first markets.
The upgrade follows other recent lending work from Curve. The protocol previously introduced a bad-debt recovery framework for LlamaLend markets that converts distressed lending positions into tradable on-chain claims. Curve founder Michael Egorov described that mechanism as an investment tool that could be applied to other markets if it proves successful.