Curve Finance has launched Llamalend v2 on Optimism, marking the initial phase of a major upgrade to its lending infrastructure. The move precedes a planned deployment on the Ethereum mainnet.

Llamalend v2 introduces a more flexible, risk-aware and capital-efficient lending system by removing the previous restriction to crvUSD pairs. Markets can now be created with virtually any combination of collateral and borrowing assets, according to the announcement on Tuesday.

Curve founder Michael Egorov told The Block in an interview that the new protocol was designed to be easier to use while also aiming to attract users managing large positions and sophisticated strategies. 

"It tries to make it more convenient for users to work with," Egorov said. "But they don't have to have a PhD in operating Llamalend."

Along those lines, users will now be able to put up Curve LP tokens as collateral, enabling liquidity providers to keep their trading exposure while borrowing against those positions. Egorov said this could create new capital-efficient strategies and reinforce the Curve DEX’s position as a major stablecoin trading platform. 

"So it could be anything," Egorov said. "You can borrow against Curve liquidity, which both pushes Curve liquidity up and satisfies the demand for [Pendle] PT tokens." (PT, aka principal tokens, were introduced by Pendle to represent the original underlying asset behind a yield-bearing token, stripped of its future yield.)

Egorov noted that LlamaRisk will be the market curator for Llamalend v2, including providing qualitative evaluations for new collateral types, like Pendle PTs, and market lifecycle management. This is a departure from v1, which enabled anyone to create isolated markets — a design that prevented systemic risk, but also created user friction, Egerov said. 

"It creates an inconvenience, because they now need to figure out if a market is safe," Egorov said. "It's too much thinking for users."

V2’s curated markets instead provide better risk evaluation to make it safer and easier for users, who no longer have to manually evaluate the safety of each market, Egorov said. “Every market should be well-evaluated.”

According to the announcement, Tuesday’s launch was supported by a 250,000 OP token grant (~$50,000) from the Optimism Foundation. These tokens will be distributed as incentives over about two months to bootstrap early liquidity and activity on v2. 

That said, Egorov noted that deploying on an Ethereum Layer 2 first is part of their security strategy, enabling them to observe contracts, user flows, and market behavior in a more contained environment before the higher-stakes Ethereum mainnet release.

Of note, the v2 markets on Optimism will be deployed with a zero borrow cap, meaning users will only be able to lend at launch. Following deployment, there will be a seven-day DAO voting period to determine the borrow caps and "build anticipation around the launch," a spokesperson said. "Once the votes pass, the markets will go fully live and the rewards campaign will begin, currently planned for June 16."

The mainnet deployment is expected in the second half of the year, "maybe a month or two later," Egorov said. "We want real economic activity to actually test it."