How Does Yield Basis Work?
Yield Basis is a novel AMM protocol by Curve Finance founder Michael Egorov that claims to eliminate impermanent loss through 2x leveraged BTC liquidity positions. With $154M TVL since its October 2025 mainnet launch, its C grade reflects the untested nature of its core IL-elimination claim, leverage-related liquidation risks from borrowed crvUSD, and a very short track record.
TVL
$167M
Sector
DEX
Risk Grade
C+
Value Grade
D
Core Mechanisms
4.1.4
Novel2x leveraged AMM pool (ybBTC) that auto-borrows crvUSD via Curve to create leveraged BTC/crvUSD LP positions, claiming to eliminate impermanent loss
Novel AMM design by Curve Finance founder Michael Egorov. Claims mathematical proof that 2x leverage eliminates IL.
6.2.2
crvUSD borrowing from Curve lending markets to fund the 2x leverage
Uses standard Curve lending infrastructure for borrowing.
3.4.2
NovelybBTC receipt token representing leveraged BTC LP position
Novel receipt token that wraps a leveraged LP position into a yield-bearing BTC derivative.
2.1.2
Trading fees from AMM swaps distributed to ybBTC holders
Standard AMM fee distribution.
5.1.1
YB governance token with voting rights over protocol parameters and pool configurations
Standard governance token launched via Legion/Kraken launchpad; controls leverage ratios and pool parameters
How the Pieces Interact
Sharp BTC price decline could trigger margin calls on the borrowed crvUSD positions, creating cascading liquidations.
The 2x leverage IL elimination thesis assumes continuous rebalancing and stable borrow costs. In extreme volatility, discrete rebalancing could break the assumption.
If Curve lending markets experience a liquidity crunch, ybBTC positions may not be able to deleverage smoothly.
Trading fees may not compensate for borrowing costs during low-volume periods, resulting in net-negative yield.
What Could Go Wrong
- The 2x leveraged liquidity model that claims to eliminate impermanent loss is a novel mechanism — the mathematical assertion that leveraging by exactly 2x eliminates IL pricing effects is untested in prolonged volatile conditions.
- Yield Basis auto-borrows crvUSD via Curve to create 2x leveraged BTC/crvUSD positions, creating dependency on Curve's lending markets and introducing liquidation risk if BTC drops sharply.
- Protocol launched on mainnet in October 2025 with less than 6 months of track record; the leveraged AMM model has not been battle-tested through a significant market drawdown.
- Concentration risk from single-strategy dependency — the entire protocol relies on the 2x leveraged AMM thesis, with no fallback strategy if the model fails.
Leveraged AMM Liquidation Cascade
ModerateTrigger: BTC drops 30%+ within 24 hours while Curve lending market utilization exceeds 90%.
- 1.Sharp BTC price decline — 2x leveraged ybBTC positions approach liquidation thresholds on borrowed crvUSD
- 2.Multiple ybBTC positions trigger liquidation simultaneously — Forced BTC selling into the AMM pool depresses BTC price further
- 3.Curve lending market liquidity tightens — crvUSD borrow rates spike, making remaining leveraged positions unprofitable
- 4.ybBTC holders attempt to exit — Deleverage requires repaying crvUSD loans at inflated rates
- 5.ybBTC price drops below underlying BTC value — Receipt token trades at a discount as market prices in liquidation risk
Risk Profile at a Glance
Overall: C+ (41/100)
Lower score = safer