If the Curve team starts a business again, will YieldBasis become the next phenomenal DeFi application?

Written by: Saint

Compiled by: AididiaoJP, Foresight News

Every once in a while, a DeFi explosive product appears in the crypto market.

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

Now, YieldBasis will redefine how liquidity providers make profits: by turning volatility into yield and eliminating impermanent loss.

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

Overview

If you've ever provided liquidity to a dual-asset pool, you've probably experienced impermanent loss firsthand.

But for those unfamiliar with the concept, a quick recap:

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

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

For example, in the BTC/USDT pool, if the price of BTC rises, traders will sell BTC to the pool for a profit, while liquidity providers end up holding more USDT and less BTC.

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

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back in 2021, high annualized percentage yields and liquidity incentives more than offset this.

But as DeFi matures, impermanent loss becomes a real flaw.

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

YieldBasis takes a new approach that aims to make liquidity provision profitable again by capturing yields from volatility while eliminating impermanent loss entirely.

What is YieldBasis?

In simple terms, YieldBasis is a platform built on top of Curve that uses Curve pools to generate yield from price fluctuations while protecting liquidity provider positions from impermanent loss.

At launch, Bitcoin was the primary asset. Users deposit BTC into YieldBasis, which distributes it to Curve's BTC pool and applies leverage using a unique on-chain structure to neutralize impermanent loss.

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

YieldBasis has already achieved significant milestones:

• Raising over $50 million from top founders and investors

• Recording over $150 million in pledges in Legion sales

• Filling its BTC pool within minutes of launch

So, how does this mechanism actually work?

Understanding the YieldBasis Workflow

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

depositing

users is to deposit BTC into YieldBasis to mint ybBTC, a receipt token that represents their share of the pool. Current supported assets include cbBTC, tBTC, and WBTC.

Flash loans and leveraged setup

protocols flash loans equal to the value of deposited BTC dollars in crvUSD.

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

The resulting LP tokens are deposited as collateral into Curve CDP (Collateralized Debt Position) to obtain another crvUSD loan to repay the flash loan, making the position fully leveraged.

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

Leverage Rebalancing

As the price of BTC moves, 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 2x

• If BTC falls: LP value decreases → Redeem part of LPs → Repay debt → The ratio returns to 50%

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

Rebalancing is handled through two key components: rebalancing automated market makers and virtual pools.

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

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

This mechanism prevents liquidation events by keeping leverage stable while giving arbitrageurs 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 to 2x leveraged BTC/crvUSD LP

• Staked ybBTC: Staked version to earn token emissions

• YB: Native protocol token

• veYB: Voting-locked YB, granting governance rights and enhanced rewards

transaction fees generated from the BTC/crvUSD pool are divided equally:

• 50% goes to users (shared between unstaked ybBTC and veYB holders)

• 50% goes back to the protocol, Funding the rebalancing mechanism

returns 50% of the rebalancing pool ensures that there are no liquidation calls due to a lack of arbitrageurs to balance the pool; Therefore, the agreement is done on its own using 50% of the agreement fee.

While the remaining 50% allocated to users is shared between unstaked ybBTC and veYB governance, following a dynamic allocation.

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

--

> when no one is staked (s = 0)

Therefore, fₐ = fmin = 10%, veYB holders receive only a small portion (10%), unstaked ybBTC Holders get the rest (90%).

When everyone is staked (s = T)

Therefore, fₐ = 100%, veYB holders receive the full user-side fee because no one stays 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 unstaked holders share 63.6%.

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

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

Since its launch, YieldBasis has had some interesting statistics:

• 28.9 million in total trading volume

Over

• $6 million for rebalancing

Over

• $200,000 in fees generated.

Personal Thoughts

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

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

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

Still, the product is in its early stages. BTC's relatively stable nature makes it an ideal test asset but could challenge rebalancing mechanisms if high-volatility trading pairs are introduced too early.

That being said, the foundation looks solid, and if the model can scale safely, it could open up a whole new yield frontier for DeFi liquidity providers.