LlamaLend Market Update: Stress Test and Arbitrage Opportunities

Curve DAO has initiated a governance vote to compensate borrowers affected by the sDOLA vault inflation attack through veFunder. **Key Details:** - Proposal seeks to reimburse users impacted by the security incident - Vote is live on [Curve's governance platform](https://www.curve.finance/dao/ethereum/proposals/1437-ownership/) - Decision will be made through community voting The proposal represents the DAO's response to address losses from the vault exploit, allowing token holders to determine the compensation mechanism.

Curve Finance has released **Llamalend v2**, a new lending framework designed around Curve liquidity. **Key Features:** - Use Curve LP tokens as collateral - Isolated market risk structure - Enhanced range-based liquidations via LLAMMA - Improved security measures The protocol is **launching first on Optimism**, expanding Curve's DeFi lending capabilities beyond its initial version. Llamalend v2 builds on the original framework's soft-liquidation mechanism while adding LP token collateral support, allowing liquidity providers to leverage their positions without unwinding them. [Read the full announcement](https://news.curve.finance/introducing-llamalend-v2/)

**Critical Alert for Arbitrum Users** Users with deposits or loans in the asdCRV LlamaLend market on Arbitrum are urged to exit immediately as a precautionary measure. **Key Points:** - The market is currently stable, but faces potential instability - Price oracle may become unreliable due to the vsdCRV exploit - Unstable oracle could trigger unexpected liquidations - Action recommended: withdraw deposits and close loans ASAP **Background Context:** This warning follows previous stress tests of LlamaLend markets. While Ethereum-based systems performed well with no bad debt, Arbitrum markets showed vulnerability due to insufficient cross-chain arbitrage activity. The current vsdCRV exploit creates additional risk specifically for the asdCRV market's price oracle mechanism, making immediate exit the safest option until the situation stabilizes.

**Attack Details and Impact** LlamaRisk published a postmortem analyzing the sDOLA market liquidations on LlamaLend. The exploit resulted in: - **$822,000 in borrower losses** through forced liquidations - **~$200,000 profit** for the attacker - Lenders remained unaffected **Root Cause** The attack exploited a combination of factors: - Price oracle vulnerability to donation attacks - Limited sDOLA liquidity outside the collateral market - Specific handling requirements for vault collaterals in LlamaLend **Potential Compensation** Curve DAO is considering compensating affected borrowers for the $822k loss, pending community discussion and governance vote. **Security Learnings** The incident provided critical insights before LlamaLend V2's release. Developers noted the attacker likely would have earned more through a responsible security disclosure than the exploit itself. The team is now incorporating oracle code from unreleased 2-way markets as mitigation for future vault collateral markets.

Frax is launching one of the first on-chain foreign exchange pools in partnership with KrwqCash, marking a significant step toward bringing traditional FX markets onto blockchain infrastructure. **Key Developments:** - Frax and KrwqCash are piloting FX pools to enable decentralized currency trading - frxUSD will play a central role in these emerging on-chain FX markets - Incentives are planned for the Curve Finance pool with KrwqCash This initiative represents an expansion of DeFi beyond crypto-native assets into traditional financial markets, potentially offering 24/7 trading and transparent pricing for foreign exchange.