Yield Basis - Disrupting Defi & Bitcoin Yield

In this episode, Brian Fabian Crain reunites with Michael Egorov, the solo founder of Curve Finance, four years after its 2020 launch. Michael outlines Curve's origins: Frustrated by inefficient DAI-to-USDC swaps following ETH borrows on MakerDAO, he developed a DeFi AMM tailored for stablecoins and early LSTs like stETH. It quickly reached 1M TVL through a bonding curve that concentrates liquidity around 1:1 prices, more effective than Uniswap's later concentrated liquidity model for pegged assets. Subsequent features include BTC wrappers, stETH pairs, crvUSD (a CDP-style stablecoin with peg-keeper for reliable stability and reversible liquidations to avoid forced sales at lows), and lending protocols. Governance relies on veCRV: Locking CRV tokens grants veCRV voting power proportional to lock duration, a mechanism widely adopted in DeFi and now refined in Yield Basis.

Yield Basis addresses impermanent loss in volatile pools such as BTC/crvUSD: Users deposit BTC to receive a ybBTC receipt token; the protocol borrows an equivalent crvUSD value, pairs it in a Curve pool at 2x leverage (50% debt, 50% equity), and uses LP tokens as loan collateral. This eliminates two-sided exposure, allowing 1:1 tracking of the deposited asset without √p drag, while fees accrue from auto-rebalances arbitrageurs employ flash loans in the Rebalancing-AMM and VirtualPool to maintain leverage.

Simulations indicate 20%+ APY, which may decline with reduced BTC volatility, under a $50B TVL cap to ensure controlled growth. It complements Curve by directing veCRV incentives to crvUSD pools (with a vote concluding soon), enhancing liquidity, trading fees, borrowing demand, and DAO revenues to levels comparable to YB DAO's from peg arbitrage. Key considerations include manual liquidity migrations due to non-upgradable contracts, the complexity of deterring forks, and the need for developer support to scale.