Compensate for the WFRAX Illamalend Market's Bad Debt

Governance Proposals
1

Summary:

Compensate for the bad debt from the WFRAX Illamalend Market on Fraxtal.

Author:

Astral Protocol: Increasing liquidity provider returns through layered yield strategies, liquidity pools and yield bearing vault tokens.

Abstract:

Permanently lend crvUSD equivalent to the bad debt in the market OR direct CRV/WFRAX emissions to the pool until lenders have recouped their losses.

Motivation:

The current state of the WFRAX lending market is a clear signal that participating in the FRAX ecosystem is risky and can result in total loss of funds. This decreases investor confidence in Frax, the Fraxtal chain and the WFRAX token.

The WFRAX Illamalend Market has less then 100K in bad debt, a small price to pay to show investors that Frax takes care of its investors and users and that participating in the Frax ecosystem is safe.

Specification:

Either deposit 95K crvUSD into the WFRAX Illamalend Market on Fraxtal until the bad debt is fully compensated for OR direct approximately 15K CRV/5K WFRAX in emissions per week to the Illamalend market for 1 year.

For:

Increase trust and confidence in the Frax.

Against:

Compensating would cost too much.

Voting Options:

  1. Don’t do anything.
  2. Donate crvUSD to the WFRAX Market.
  3. Direct CRV to the WFRAX Market
  4. Distribute WFRAX to the WFRAX market
  5. Execute a combination of options 1-3.
  6. Propose to FRAX to match them 50/50 in compensating for the WFRAX market’s bad debt or compensating affected lenders.
1 Like
2

For.
opcion 5

llamalend is esecential for Fraxtal.

3
  1. Don’t do anything.
4

Hi, thanks for raising this — I looked into the WFRAX Illamalend market’s bad debt while working on a similar Curve LlamaLend controller (CRV-long, dashboard here: CRV-long recovery pool — claim price, exits, depth, and real backing | Dune), and wanted to share a data point that might be useful for this thread.

Reading the controller’s UserState events directly (not netted), the per-position shortfall — sum(max(0, debt - collateral_value)) across all borrowers — comes out to ~140K crvUSD as of the market’s most recent state, and was already ~140K at the block right after this proposal was posted (2026-03-15). That’s higher than the ~95K figure in the proposal.

I think the difference comes down to how “bad debt” is being measured, not a change over time. If you compute it as one aggregate number — total debt minus total collateral value across the whole market, without separating positions — you get a much lower number (~84K at the same block), because healthy, over-collateralized positions end up netting against underwater ones. That’s a well-known pitfall in this kind of market (Curve’s own LlamaLend docs note that over-collateralization on one loan can’t offset another borrower’s deficit). Computed per-position, that netting doesn’t happen, and the ~140K figure holds across every date I checked going back to November 2025.

I’m not claiming to know which number you used, or that either one is “wrong” — just flagging that the two methods diverge by a meaningful amount for this specific market, in case it’s useful context for whatever compensation approach is decided. Happy to share the raw per-position numbers or method if that’s helpful.

5

Hi there! thanks for putting this proposal together. Before this can move forward, it would be helpful to clarify a few points and also restructure the proposal to follow the standard FIP governance template so that delegates can properly evaluate it.

A few questions that would help the discussion:

• Can you provide a clear breakdown of the current problem with the WFRAX Illamalend market?
• Why is CRV emission redirection suggested as a solution if the issue originated on Fraxtal? Clarifying the connection would help delegates evaluate feasibility.