Read Yieldbasis: A Leveraged Liquidity Engine to Eliminate Impermanent Loss

Source: Alea Research
Compiled by Zhou, ChainCatcher

Yieldbasis may be one of the most anticipated DeFi projects in Q4.

Created by Michael Egorov, founder of Curve Finance, the project aims to transform constant-product AMM pools into "carry trades" that are resistant to impermanent loss (IL), starting with Bitcoin. YieldBasis does not accept the premise that LPs necessarily assume IL, but maintains a constant 2x leveraged position in the BTC/stablecoin pool, tracking the price of BTC at a 1:1 ratio while still earning transaction fees.

Curve provided $60 million in crvUSD credits to launch three BTC pools, using the same dynamic fee sharing and governance mechanisms inspired by Curve's veCRV model.

This article will examine how YieldBasis eliminated impermanent loss, its leveraged liquidity engine and fee design, and the recent Legion sale, which raised nearly $200 million in FDV through performance-based distributions.

Utilizing liquidity leverage to eliminate IL

impermanent loss has always been a burden of providing liquidity to DEXs. Projects like Uniswap v3 provide centralized liquidity to mitigate impermanent loss, while others subsidize liquidity providers (LPs) through token offerings.

YieldBasis solves the IL problem by turning a dual-asset AMM into a single-asset arbitrage trade, ensuring that the pool always holds 100% of the net exposure to BTC (through 2x leverage) while borrowing stablecoins to fund the other party. This method is similar to basis trading in TradFi, where users borrow cash to buy futures or spot and profit from funding spreads and price fluctuations.

Key Concepts:

Deposits vs. Borrowing: When users deposit BTC, the protocol quickly borrows the equivalent of USD crvUSD and adds both assets to the Curve BTC/crvUSD pool. The resulting LP tokens will be used as collateral, borrowing crvUSD and repaying the flash loan, with the remaining 50% debt/50% equity position (2x leverage).

Rebalancing AMMs and Virtual Pools: As BTC prices fluctuate, rebalancing AMMs and virtual pools expose small price differences, incentivizing arbitrageurs to revert to 2x leverage. When the price of BTC rises, the system will mint more crvUSD and LP; When the price of BTC falls, the system pays off the debt and burns the LP. Arbitrageurs earn the spread, aligning their incentives with pool health.

Linear Exposure: By maintaining a constant 2x leverage, liquidity providers (LPs) will grow linearly with the BTC price rather than proportional to its square root. This means that liquidity providers (LPs) will have exposure to BTC prices 1:1 while still receiving Curve trading fees.

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Curve Flywheel

This design also takes full advantage of Curve's ecosystem flywheel. YieldBasis borrows crvUSD directly from Curve's credit line (if approved).

– Transaction

fees > the BTC/crvUSD pool are provided to YieldBasis liquidity providers (LPs) and veYB holders in the form of dynamic management fees. 50% of these fees are used for rebalancing, and the remaining 50% is distributed between unstaked liquidity providers (LPs) and veYB based on ybBTC's staked share. If many liquidity providers (LPs) stake to earn YB issuance, the management fee increases, paying more to veYB. However, if the number of staked is smaller, liquidity providers (LPs) will receive more BTC-denominated fees.

This mechanism balances the incentive mechanism and rebuilds Curve's measurement system.

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$5 million in Legion and Kraken Launch financing

Yieldbasis recently closed $5 million (2.5% of total supply) through Kraken and Legion, with an FDV of $200 million. Of this amount, $2.5 million was allocated to Legion's "contribution-based" public sale and $2.5 million to Kraken Launch. These tokens are 100% unlocked at TGE.

The public sale is divided into two phases:

Phase 1: Reserve up to 20% of tokens to users with high reputation scores on Legion (based on on-chain activity, social and GitHub contributions, etc.).

Phase 2: Open the remaining quota on Kraken and Legion on a first-come, first-served basis.

Legion's offering was oversubscribed by 98x. The final treatment includes culling witches and bots and adopting a "weight-to-end" allocation approach:

allocating more funds to top contributors (those who can increase TVL, bring visibility, contribute to the codebase, etc.);

At the same time, thousands of other companies have also received some allocations, combining the advantages of angel round financing with a wide range of allocations.

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