What is Yield Basis (YB)? Curve's new creation eliminates Impermanent Loss or reenacts the Luna crash.

Curve Finance founder Michael Egorov launched Yield Basis (YB) in early 2025, claiming to eliminate Impermanent Loss from AMMs through a 2x leverage mechanism, allowing LPs to utilize $500 worth of BTC to achieve a $1000 market-making effect.

But what is the truth about Yield Basis (YB)? The project relies on equivalent lending rather than over-collateralization, crvUSD reserves are insufficient, and the complex ybBTC/YB/veYB three-layer token structure is remarkably similar to Luna-UST, which raises Ponzi scheme concerns as Curve DAO proposes to issue 60 million USD in crvUSD to inject liquidity.

What is Yield Basis (YB): Curve's counterattack

After the collapse of Luna-UST, stablecoins have completely bid farewell to the era of stable calculations. The CDP mechanism (DAI, GHO, crvUSD) once became the hope of the entire village, but ultimately, what broke through the encirclement of USDT/USDC was Ethena and the yield anchoring paradigm it represents, which not only avoids the inefficiency issues caused by over-collateralization but also utilizes the native yield characteristics to open up the DeFi market.

In contrast, after relying on stablecoin trading to open up the DEX market, the Curve system has gradually ventured into the lending market Llama Lend and the stablecoin market crvUSD. However, under the brilliance of Aave, the issuance of crvUSD has long hovered around 100 million USD, essentially only serving as a backdrop. However, after the flywheel of Ethena/Aave/Pendle was activated, Curve's new project Yield Basis also wants to take a share of the stablecoin market.

Yield Basis was launched in early 2025, founded by Michael Egorov, the creator of Curve Finance. Egorov and his team have deep expertise in blockchain engineering, DeFi protocol design, and financial mathematics, having previously built and expanded Curve into a multi-billion dollar ecosystem. Since its establishment, Yield Basis has raised $5 million in seed funding from well-known DeFi investors and obtained a $60 million crvUSD credit line from Curve DAO.

So what is the core innovation of Yield Basis (YB)? It is not aimed at stablecoins or the lending market, but rather at the issue of Impermanent Loss in AMM DEXs. However, it must be stated first: the true purpose of Yield Basis has never been to eliminate Impermanent Loss, but rather to promote a surge in the issuance of crvUSD.

The Mechanism of Impermanent Loss and the Logic of "Elimination"

(Source: zuoyeweb3)

To understand how Yield Basis (YB) works, it is essential to first grasp the concept of Impermanent Loss. LPs (liquidity providers) replace traditional market makers and provide "bilateral liquidity" for AMM DEX trading pairs under the incentive of sharing transaction fees. For example, in the BTC/crvUSD trading pair, LPs need to provide 1 BTC and 1 crvUSD (assuming 1 BTC = 1 USD), at which point the total value of the LP is 2 USD.

Suppose the price of BTC rises by 100% to 2 USD. The arbitrageur would use 1 USD to buy 1 BTC in Pool A (since the price in Pool A has not yet adjusted) and then sell it in Pool B when its value reaches 2 USD, netting the arbitrageur a profit of 1 USD. This profit essentially represents the loss of the LP in Pool A.

It can be proven mathematically that the value of LP after arbitrage occurs is LP(p) = 2√p, while if LP simply holds 1 BTC and 1 crvUSD, its value is LP_hold(p) = p + 1. According to the inequality, for p > 0 and not equal to 1, it is always true that 2√p < p + 1, which is the mathematical essence of Impermanent Loss.

The "elimination" logic of Yield Basis is very clever: starting from the perspective of asset yield, letting √p become p can ensure LP fees while retaining holding yield. This is very simple, just √p², and from a financial perspective, it means a fixed leverage of 2 times. This allows 1 BTC to exert its own market-making efficiency of two times, with BTC only participating in its own yield comparison, which means transforming from √p to p itself.

4-Step Mechanism to Achieve 2x Leverage

(Source: yieldbasis)

However! LPs must provide liquidity for the BTC/crvUSD trading pair, and if the pool only contains BTC, it cannot operate. Llama Lend and crvUSD are moving with the trend, launching a dual lending mechanism:

Step 1: The user deposits (cbBTC/tBTC/wBTC) 500 BTC, and YB borrows an equivalent of 500 crvUSD using 500 BTC. Note that at this point it is an equivalent value, using the flash loan mechanism, not a complete CDP (originally about 200% collateralization rate).

Step 2: YB deposits 500 BTC/500 crvUSD into the corresponding BTC/crvUSD trading pool on Curve and mints it as $ybBTC representative shares.

Step 3: YB will use the LP share worth 1000 U as collateral to borrow 500 crvUSD through the CDP mechanism at Llama Lend and repay the initial equivalent loan.

Step 4: The user receives ybBTC representing 1000 U, Llama Lend receives 1000 U of collateral and eliminates the first equivalent loan, and the Curve pool receives 500 BTC/500 crvUSD liquidity.

In the end, 500 BTC "eliminated" its own loan and obtained a 1000 U LP share, achieving a 2x leverage effect. However, please note that the equivalent loan was borrowed by YB, acting as the crucial intermediary. Essentially, YB takes on the remaining 500 U loan share from Llama Lend, so the Curve fees must also be shared by YB.

Yield Basis (YB) Earnings Distribution Trap

If users think that 500 U of BTC can generate 1000 U in transaction fee profits and all of it belongs to them, that would be too naive. YB's careful thought lies in its pixel-level homage to Curve—a complex multi-layer token structure and yield distribution mechanism.

The original profit formula is: Profit = 2x Transaction Fee - Borrowing Rate - Rebalancing Costs. Here, 2x Transaction Fee means that a user investing 500 U worth of BTC can generate a profit of 1000 U in transaction fees, the borrowing rate represents the fee of Llama Lend, and the rebalancing costs represent the expenses for arbitrageurs to maintain 2x leverage.

There is now a good news and a bad news:

Good news: The lending income from Llama Lend is all returned to the Curve pool, which effectively increases LP earnings passively.

Bad News: The transaction fees for Curve pools are fixed at 50% for the pool itself, meaning that both LP and YB will share the remaining 50% of the transaction fees.

The fees allocated to veYB are dynamic and are actually distributed dynamically among ybBTC and veYB holders, with veYB guaranteed to receive a fixed minimum of 10%. This means that even if no one stakes ybBTC, they can only receive 45% of the original total income, while veYB, which is YB itself, can receive 5% of the total income.

(Source: yieldbasis)

A Magical Result Appears: Even if users do not stake ybBTC to YB, they can only receive 45% of the transaction fees. If they choose to stake ybBTC, they will receive YB Token but must forfeit the transaction fees. If they want both, they can continue to stake YB to exchange for veYB, which allows them to earn transaction fees. However, if they want to obtain full voting rights for veYB (bribery mechanism), then congratulations, they will have a four-year lock-up period; otherwise, voting rights and earnings will gradually decrease with the staking period.

Impermanent Loss has never disappeared, it has only shifted

YB, ybBTC

As mentioned earlier, Impermanent Loss is a type of accounting loss that is only a floating loss as long as liquidity is not withdrawn. Now, YB's elimination plan is essentially "accounting income," giving you a kind of anchored holding profit while nurturing its own economic system. You want to leverage 500 U to generate 1000 U in transaction fee income, while YB wants to "lock in" your BTC and sell its own YB to you.

Yield Basis (YB) is remarkably similar to Luna-UST

(Source: yieldbasis)

Outside of the complex mechanisms of economics, the focus is on the market expansion path of crvUSD. The founder of Curve surprisingly proposed to issue 60 million USD of crvUSD to supply initial liquidity for YB, which is quite bold. YB will provide benefits to Curve and $veCRV holders as planned, but the core issue is the pricing and appreciation of the YB Token. Ultimately, crvUSD is U, so is YB really an appreciating asset?

Not to mention the occurrence of another Resupply event (which was a disaster after the joint launch of Convex and Yearn Fi in 2024), the impact would be on the Curve itself. Users' deposited BTC will "issue" an equivalent amount of crvUSD, which increases the supply of crvUSD. Every crvUSD will be put into the pool to earn transaction fees, which is a real trading scenario. However, essentially, this portion of crvUSD reserves is equivalent rather than excessive.

According to Michael's vision, the borrowed crvUSD would efficiently collaborate with the existing trading pools, for example, wBTC/crvUSD would be linked with crvUSD/USDC, promoting the trading volume of the former and also increasing the trading volume of the latter. The transaction fees for the crvUSD/USDC trading pair would be split 50% to the holder of $veCRV and the remaining 50% would go to the LP.

This is a very dangerous assumption. The crvUSD lent by Llama Lend to YB is exclusively for use in a single pool, but pools like crvUSD/USDC are open-access, meaning that at this point, the crvUSD essentially has insufficient reserves. Once the currency value fluctuates, it can be easily exploited by arbitrageurs, followed by the familiar death spiral: issues with crvUSD will affect both YB and Llama Lend, ultimately impacting the entire Curve ecosystem.

Please note that crvUSD and YB are pegged, and 50% of the newly added liquidity must enter the YB ecosystem. The crvUSD used by YB is issued in isolation, but the usage is not isolated, which is the biggest potential risk point.

Michael's 20% APR commitment and the déjà vu with UST

The plan proposed by Michael is to use 25% of the YB Token issuance to bribe the stablecoin pool to maintain depth. The order of asset security is: BTC > crvUSD > CRV > YB. When a crisis strikes, if YB can't even protect itself, how can it protect anything else?

It can still be more like that. According to Michael's calculations, based on the BTC/USD trading volume and price performance over the past six years, he has figured out that a 20% APR can be guaranteed, and a 10% yield can be achieved even in a bear market. The peak during the bull market in 2021 could reach 60%. If a little empowerment is given to crvUSD and scrvUSD, surpassing USDe and sUSDe is not a dream.

This immediately reminds people that UST also guaranteed a 20% yield, and the model of Anchor + Abracadabra ran for quite a long time. Wouldn't the combination of YB + Curve + crvUSD be any different? At least, UST crazily bought BTC as a reserve before its collapse, while YB is directly based on BTC for leveraged reserves, which is considered a huge improvement. But forgetting history is equivalent to betrayal; there is ample reason for seasoned DeFi investors to remain highly vigilant about such high-yield promises.

The Token Economics Trap of Yield Basis (YB)

The total issuance of YB tokens is 1 billion, with the following distribution structure:

Community Incentives: 30% (300 million)

Team: 25% (250 million)

Development Reserve: 15% (150 million)

Investor Sale: 10% (100 million)

Curve Ecosystem Permission: 10% (100 million)

Partners: 10% (100 million)

The team and investors collectively hold 35%, plus 10% from the Curve ecosystem, resulting in insiders controlling 45% of the tokens. The more critical question is, where does the value of YB Token itself come from? It is a product of the fee-sharing from the crvUSD/BTC trading pair. Remember, Luna-UST was the same; UST was minted in proportion to the amount of Luna destroyed, and both relied on each other. YB Token is similar to crvUSD.

Investors need to clearly understand the nature of Yield Basis (YB): this is an experiment that attempts to mask fundamental risks with complex token economics and leverage mechanisms. If crvUSD demand is insufficient, BTC price experiences severe fluctuations, or the value of YB Token collapses, the entire system may fall into a death spiral in a short period of time.

Since Ethena, on-chain projects have begun to seek real yields rather than just looking at market dream rates. Ethena utilizes CEX to hedge ETH for yield capture, distributes yields through sUSDe, and employs $ENA treasury strategies to maintain the trust of large holders and institutions, stabilizing the issuance of USDe at tens of billions of dollars through multiple adjustments. YB wants to find real trading yields, which is not a problem in itself, but arbitrage and lending are different; trading has a stronger immediacy, and each crvUSD represents a joint liability between YB and Curve, and the collateral itself is also borrowed from users, resulting in self-owned capital being close to zero.