Conventional liquidation is binary: cross a threshold and your position is sold at a discount to a liquidator, often at the worst moment. Curve's LLAMMA replaces it with a continuous process — as the price falls through a band, collateral is progressively sold into the loan asset; as it rises, the trade reverses.
What that changes for a borrower
You are never wiped out at a single price point. A brief wick through a level does not destroy the position, and a recovery restores collateral. That is a real improvement for anyone who has been liquidated by a momentary spike on a thin market.
What it costs
Time spent in the liquidation band is expensive: the mechanism sells low and buys back high repeatedly as the price oscillates, and the value lost is real. A position that hovers in the band for weeks can lose a meaningful share of its collateral without ever being formally liquidated. Soft liquidation is not free protection — it converts a cliff into a slope.
The 2024 episode
When very large CRV-collateralised positions belonging to Curve's founder unwound, bad debt appeared in specific markets. The mechanism worked as designed and the position size relative to CRV's liquidity was the problem. It illustrates that no liquidation design survives collateral that is too large for its market.
Who should use it
Borrowers who want protection against wick liquidations and will monitor whether their position is sitting in the band. Isolated markets mean checking the specific market's collateral and depth before borrowing.