Borrowing crvUSD on Curve is a very different experience from borrowing USDC on Aave. The biggest difference lies in "liquidation": Curve does not sell off your collateral all at once when the price hits a certain point. Instead, it gradually and reversibly converts your collateral as the price falls. Understanding this mechanism is the prerequisite for managing a crvUSD loan.
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What Soft Liquidation Actually Does
Curve's liquidation system is called LLAMMA (Lending-Liquidating AMM Algorithm). It turns liquidation into a gradual process within a price range, rather than a sudden event at a single price point.
When the price of your collateral enters the preset liquidation range, the system starts converting a portion of your collateral into crvUSD. The more the price drops, the higher the conversion ratio. If the price rebounds, the system uses the crvUSD obtained earlier to buy back the collateral. This process is called "de-liquidation."
This design is meant to buy you time. On traditional platforms, when the price falls below the threshold, your collateral is sold instantly, leaving you no window to react. On Curve, as long as the loan's "health" remains above 0, the position is still alive. You can choose to repay, add collateral, or wait for the price to recover.
But soft liquidation is not free protection. Every conversion incurs a loss because the system needs to leave profit margin for arbitrageurs to execute these swaps. When the price oscillates back and forth within the liquidation range, losses accumulate and health continuously declines. Curve's documentation explicitly states that losses may continue to occur even during a price recovery, until the price completely exits the liquidation range.
Data reported by CoinDesk shows that in the first half of 2026, Curve recorded 704 soft liquidation events involving 602 borrower addresses, with a median duration of 14.5 days. A quarter of positions stayed within the liquidation range for at least 38.9 days, and some even lasted for months.
Decisions to Make When Opening a Position
When opening a crvUSD loan, you need to choose two things: the amount of collateral, and how much crvUSD to borrow. But there is another parameter that significantly affects your subsequent risk experience: the width of the liquidation range.
This width is determined by the "number of bands" you choose. The default is 10 bands, but you can lower it to 4 or raise it to 50. More bands mean a wider liquidation range, smaller conversion amounts per step once the price enters the range, and a smoother overall process. Fewer bands mean a narrower range, more concentrated conversions, and potentially faster loss accumulation.
For those who do not want to constantly monitor their positions, I recommend using the default or a higher number of bands, sacrificing a bit of capital efficiency in exchange for a wider reaction window. If you have a clear view on the collateral's price trend and can continuously monitor your position, a narrow range can give you higher borrowing efficiency under normal conditions.
After opening a position, the interface will show your "health" and the liquidation range. Health is the core metric for measuring your safety buffer: above 10 is very safe, around 5 requires attention, below 2 means you are approaching the critical point, and reaching 0 triggers hard liquidation.
What You Can and Cannot Do During Soft Liquidation
Once your loan enters soft liquidation mode, the available actions narrow significantly.
What you cannot do: you cannot add collateral, you cannot borrow more crvUSD, and you cannot remove collateral. These operations are prohibited by the protocol during liquidation. Curve's risk documentation explains the reason for this design: after entering soft liquidation, the collateral is locked, and you cannot actively improve your situation by adjusting the position.
What you can do: repay, partially or in full. This is the only action you can take during soft liquidation to actively improve your health. But there is a key detail to know: repaying during liquidation does not move your liquidation range. No matter how much you repay, even 99% of the debt, the upper and lower bounds of the liquidation range will not change. Only your health will improve.
What does this mean? If you entered soft liquidation because the price fell too deep, partial repayment can buy you more time, but it will not make the price "leave" the liquidation range. As long as the price remains within the range, conversions and losses will continue.
How to Repay the Loan and Exit
There are two paths to repay the loan, depending on your current state.
When not in liquidation, operations are more flexible. You can repay with crvUSD from your wallet, repay using collateral tokens, or use the collateral itself to repay—the system will sell enough collateral to cover the debt and return the remainder to you. Curve's documentation also mentions a convenient option: check "Repay in full and close loan" to complete repayment and closing in one step.
When in liquidation, you can still repay in full to close the loan. Curve's documentation also calls this operation "Self-liquidate." Essentially, you use crvUSD from your wallet to pay off the entire debt. Once repaid, the position closes and any remaining assets (if any) will be returned to your wallet.
If you choose to close a leveraged loan by repaying with collateral, note one difference: what you receive may not be the original collateral token, but crvUSD. This is because the system converts all collateral into crvUSD to repay the debt, then sends you the remainder. To get back the original collateral, you need to repay directly with assets from your wallet.
What Triggers Hard Liquidation
There is a clear line between soft liquidation and hard liquidation: health reaching zero.
Health is not the same as price. It is affected by multiple factors. Price declines lower health, conversion losses during soft liquidation lower health, and continuously accruing interest also slowly lowers health. The most counterintuitive point is this: a price recovery does not necessarily restore health. As long as the position remains within the liquidation range, conversion losses may continue to occur and health may continue to decline, until the price completely exits the range.
Hard liquidation is irreversible. Once triggered, the position is forcibly closed, and the collateral is handled according to market conditions at that time. There is no possibility of recovery or de-liquidation.
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References
- Curve Technical Docs·Open and Close Loan, page published or updated: 2026-09-06; verified: 2026-10-06.
- Curve Technical Docs·Liquidation Protection & Loan Health, page published or updated: 2026-09-23; verified: 2026-10-06.
- Curve Resources·Liquidations, page undated; verified: 2026-10-06.
- Curve Resources·Managing a Loan, page published or updated: 2026-09-09; verified: 2026-10-06.
- Curve Resources·Managing a Loan (Beginner Guide), page undated; verified: 2026-10-06.
- Curve Technical Docs·crvUSD Risk Disclaimer, page published or updated: 2026-09-24; verified: 2026-10-06.
- Curve Resources·Using Leverage, page published or updated: 2026-09-09; verified: 2026-10-06.
- CoinDesk·How Curve's soft liquidation model lets borrowers survive market drawdowns, page published or updated: 2026-09-07; verified: 2026-10-06.
- KuCoin·Curve Finance Launches Soft Liquidation Model to Improve Borrower Experience, page published or updated: 2026-09-07; verified: 2026-10-06.
