Curve team strikes again: YieldBasis aims to completely eliminate Impermanent Loss?

Original Title: Will the Curve Team's New Venture, YieldBasis, Become the Next Phenomenal Decentralized Finance Application?

Original Author: Saint

Original source:

Reprint: Daisy, Mars Finance

Every once in a while, a blockbuster DeFi product will emerge in the crypto market.

Pumpfun makes token issuance easy, while Kaito changes content distribution.

Now, YieldBasis will redefine the way liquidity providers profit: by converting volatility into yields and eliminating impermanent loss.

In this article, we will explore the basics, analyze how YieldBasis works, and highlight relevant investment opportunities.

Overview

If you have ever provided liquidity to a dual-asset pool, you may have personally experienced impermanent loss.

But for those who are not familiar with this concept, a quick recap:

Impermanent loss is a temporary loss of value that occurs when providing liquidity to a pool containing two assets.

As users trade between these assets, the liquidity pool will automatically rebalance, which often results in liquidity providers holding more of the sold assets.

For example, in the BTC/USDT liquidity pool, if the price of BTC rises, traders will sell BTC to the liquidity pool to realize profits, while liquidity providers will ultimately hold more USDT and less BTC.

When withdrawing funds, the total value of the position is usually lower than simply holding BTC.

As early as 2021, the high annual percentage yield and liquidity incentives were enough to offset this.

But as DeFi matures, impermanent loss has become a real drawback.

Various protocols have introduced fixes, such as concentrated liquidity, Delta neutral liquidity providers, and unilateral funding pools, but each method has its own trade-offs.

YieldBasis has adopted a new approach aimed at capturing returns from volatility while completely eliminating impermanent loss, making liquidity provision profitable again.

What is YieldBasis?

In simple terms, YieldBasis is a platform built on Curve that generates returns from price fluctuations using Curve liquidity pools while protecting liquidity providers' positions from impermanent loss.

At launch, Bitcoin was the main asset. Users deposit BTC into YieldBasis, which allocates it to the BTC pool on Curve and uses a unique on-chain structure to apply leverage, thereby neutralizing impermanent loss.

Founded by the same team behind Curve, including @newmichwill.

YieldBasis has achieved a significant milestone:

• Raised over $50 million from top founders and investors.

• Recorded over $150 million in committed amount during the Legion sale.

• Filled its BTC liquidity pool within a few minutes after launch.

So, how does this mechanism actually work?

Understanding the YieldBasis workflow

YieldBasis operates through a three-step process designed to maintain a 2x leveraged position while protecting liquidity providers from downside risk.

Deposit

The first step for users is to deposit BTC into YieldBasis to mint ybBTC, which is a receipt token representing their share in the liquidity pool. The currently supported assets include cbBTC, tBTC, and WBTC.

Flash Loans and Leverage Settings

The protocol lends and deposits crvUSD equivalent to the dollar value of BTC.

BTC and borrowed crvUSD are paired and provided as liquidity to the BTC/crvUSD Curve pool.

The LP tokens generated are deposited as collateral in a Curve CDP (Collateralized Debt Position) to obtain another crvUSD loan, which is used to repay the flash loan, fully leveraging the position.

This creates a 2x leveraged position with a constant 50% debt ratio.

Leverage Rebalancing

As the BTC price fluctuates, the system automatically rebalances to maintain a 50% debt-to-equity ratio:

If BTC rises: LP value increases → Protocol borrows more crvUSD → Risk exposure resets to 2 times

If BTC falls: LP value decreases → redeem part of LP → repay debt → ratio returns to 50%

This keeps the BTC risk exposure constant, so you won't lose BTC even if the price fluctuates.

Rebalancing is handled through two key components: the rebalancing automated market maker and the virtual fund pool.

Rebalancing automated market makers track LP tokens and crvUSD debts, adjusting prices to encourage arbitrageurs to restore balance.

At the same time, the virtual funding pool wraps all steps of flash loans, LP token minting/burning, and CDP repayments into a single atomic transaction.

This mechanism prevents liquidation events by maintaining stable leverage while providing arbitrageurs with small profit incentives to maintain equilibrium.

The result is a self-balancing system that continuously hedges against impermanent loss.

Fees and Token Distribution

YieldBasis has four main tokens that define its incentive system:

ybBTC: Claim on 2x leveraged BTC/crvUSD LP

Staked ybBTC: Staking version to earn token emissions

YB: Native Protocol Token

veYB: The YB locked for voting grants governance rights and enhances rewards.

All transaction fees generated from the BTC/crvUSD liquidity pool are equally distributed:

50% returned to users (shared among holders of unstaked ybBTC and veYB)

50% return protocol to provide funding for the rebalancing mechanism

Returning 50% of the rebalancing fund pool ensures that there will be no liquidation calls due to a lack of arbitrageurs to balance the fund pool; therefore, the protocol uses 50% of the protocol fees to complete it on its own.

The remaining 50% allocated to users will be shared between the unstaked ybBTC and veYB governance, following a dynamic distribution.

In short, the protocol tracks the amount of ybBTC that has been staked and adjusts the fees that each holder (both unstaked ybBTC and veYB) can potentially earn using the following formula:

When there is no collateral, (s = 0)

Therefore, 𝑓ₐ = 𝑓𝑚𝑖𝑛 = 10%, veYB holders only receive a small portion (10%), while the remaining portion (90%) goes to the un-staked ybBTC holders.

When everyone stakes, (s = T)

Therefore, 𝑓ₐ = 100%, veYB holders receive all user-side fees, as no one remains to earn transaction fees.

When half of the supply is staked, (s = 0.5T), the management fee rises (≈ 36.4%), veYB receives 36.4%, and non-staked holders share 63.6%.

For holders of staked ybBTC, they receive YB emissions, which can be locked as veYB for a minimum of 1 week and a maximum of 4 years.

Staked ybBTC holders can lock the emissions they receive to simultaneously enjoy fees and emissions as veYB holders, creating a flywheel effect that allows them to earn maximum fees from the protocol, as shown in the figure below.

Since its launch, yieldbasis has had some interesting statistics:

Total trading volume reaches 28.9 million USD

Over 6 million USD for rebalancing

Generate fees exceeding $200,000.

Personal thoughts

YieldBasis represents one of the most innovative designs in liquidity provision since the original stable swap model of Curve.

It combines proven mechanisms; voting escrow tokenomics, automatic rebalancing, and leveraged liquidity provision, integrated into a new framework that could set the next standard for capital-efficient yield strategies.

Given that it is built by the same group behind Curve, the market's optimism is not surprising. With over $50 million in funding and the liquidity pools filling up instantly, investors are clearly betting on its future token issuance.

Nevertheless, the product is still in its early stages. The relatively stable nature of BTC makes it an ideal testing asset, but introducing highly volatile trading pairs too early may challenge the rebalancing mechanism.

That said, the foundation looks solid, and if the model can scale securely, it may open up a whole new frontier of returns for Decentralized Finance liquidity providers.