Yield Basis, developed by Curve Finance, provides a new approach for liquidity management for liquidity providers of tokenized Bitcoin and Ether. This protocol aims to mitigate impermanent loss while creating a market-based mechanism for token emission regulation.
What is Yield Basis?
Yield Basis operates through compounding leverage, maintaining a position overcollateralized by 200% at all times via borrowed crvUSD, a decentralized stablecoin pegged to the US dollar. According to Curve Finance founder Dr. Michael Egorov, "impermanent losses happen because of this square root dependency. We really want to get rid of the square root."
Methods of Liquidity Management
Users have the option to receive yield in either tokenized Bitcoin or Yield Basis token, creating a market-oriented solution for setting inflation rates and controlling token emissions. Egorov remarked that "in different market conditions, you need to do different things," allowing users to accrue real yield.
Future Prospects of Yield Basis
In speculative bull markets, many users are likely to choose holding and staking the YB token for price appreciation, while in protracted bear markets, users may prefer to receive their yield in Bitcoin, counterbalancing YB token inflation.
Yield Basis by Curve Finance marks a significant advancement in DeFi liquidity management, offering innovative solutions to reduce impermanent losses and optimize token emissions, potentially attracting more participants to the market.
