Curve Finance recently encountered a hacking incident that put its soft liquidation mechanism, LLAMMA, to the test. Despite LLAMMA's effectiveness in addressing the situation, the price of the CRV token dropped by more than 28%, causing concern in the decentralized finance (DeFi) community.

Michael Egorov, the founder of Curve Finance, is at risk of liquidation due to his leveraged positions in CRV that are currently being liquidated following the token's sharp decline. Egorov had borrowed $95.7 million in stablecoins, primarily crvUSD, across various accounts and protocols, using $141 million worth of CRV as collateral.

Egorov's on-chain activities included attempts to manage his debt positions through liquidations, repayments, and withdrawals from platforms like Inverse Finance and Curve.fi.

In response to the incident, Egorov praised the system's performance, highlighting how it enabled timely liquidation of the hacker's position. This eliminated any outstanding hacker funds or bad debts, showcasing the system's resilience.

The cryptocurrency community had diverse perspectives on the event, with Ethereum and CryptoPunks OG [@econoar] clarifying that Egorov's liquidation did not result in significant losses.

LLAMMA, or Lending-Liquidating Automated Market Maker Algorithm, features a soft liquidation mechanism specifically designed to manage liquidations without generating unmanageable debt. According to LLAMMA documentation, collateral in a loan is segmented into bands within the automated market maker, allowing for continuous liquidation based on preset ranges.

Unlike traditional liquidation approaches with a single price point, LLAMMA's multiple liquidation ranges facilitate ongoing collateral liquidation based on requirements.

The documentation highlights that during soft liquidation, positions may incur losses from collateral transactions, impacting the loan's health. If a position's health diminishes to 0%, it faces hard liquidation, leading to loan closure.

Despite LLAMMA's intended functionality, the market reacted negatively, culminating in a significant 28% drop in CRV token price within a 24-hour period.