Hey Edge readers,

Everyone who has dabbled in DeFi has probably experienced a hard lesson about impermanent loss. You provide liquidity for BTC + stables on an AMM like Uniswap, collected fees and rewards…and still underperformed just holding. 🫠

This week, we cover Yield Basis, a protocol that lets you LP your BTC on Curve, earn trading fees, while maintaining 1:1 BTC exposure, thanks to a clever use of leverage engineering.

Stay sharp. 🫡

-The Exponential team

What is Yield Basis?

Disclaimer: This content should not be taken as financial advice. Always do your own research before making any investment decisions.

Yield Basis, built by Curve founder @newmichwill, is a new DeFi protocol that lets you earn BTC-denominated yield on BTC through an automated market maker (AMM)—without getting hit by impermanent loss (IL). The trick? It pairs your BTC with borrowed stablecoins to create a 2× leveraged position that tracks BTC 1:1 while earning trading fees.

(FYI: All vaults are currently full. Each has a $50M deposit cap.)

The Problem: IL in classic AMMs

In normal AMMs, your BTC gets swapped into stables as prices move up. This means when BTC goes up, you’re selling to stables at less than ideal prices. For example, as a BTC-USD LP holder, if BTC doubles, you end up with only ~0.7 BTC instead of 1, which underperforms a simple hold strategy.

Example:

• Start with: 1 BTC ($100k) + $100k stables

• BTC doubles to $200k

• AMM LP ends with ≈ 0.707 BTC + $141k ≈ $283,885

• HODL would be $300,000 → ~5.7% IL (before fees)

The Solution: Leveraged liquidity (2x)

Yield Basis aims to fix impermanent loss by pairing your BTC (tBTC, cbBTC, WBTC) with borrowed crvUSD and depositing both into a Curve BTC/crvUSD pool. It then uses that LP position as collateral, borrows against it, and automatically keeps the setup at 2x leverage.

That 2x leverage is the magic: It keeps your BTC exposure perfectly 1:1, keeps leverage easy to rebalance, and avoids the risk blowups that come with higher leverage.

When you deposit BTC, the protocol borrows an equal USD value (crvUSD) and adds both to the Curve pool.

• 1 BTC + $100K crvUSD → $200K LP position.

• Half of that ($100K) is debt, half is your equity → 2x leverage (because $200K exposure / $100K equity).

Key takeaway: Traditional AMMs always underperform when prices move around. Yield Basis keeps your BTC exposure 1:1 and still earns fees on top.

How rebalancing works

Whenever BTC’s price moves, an internal Rebalancing AMM (rAMM) keeps the system balanced by incentivizing arbitragers to restore the 50/50 debt-to-equity ratio.

📈 BTC up → debt too low

Your LP value rises (because your BTC is worth more), but your debt (the borrowed crvUSD) stays the same.

So now:

• LP value might be $220k

• Debt is still $100k

• Debt ratio = 100k / 220k = 45% → leverage has fallen below 2×.

To get back to 2× leverage (50/50), the system needs to add more debt. The rAMM slightly adjusts prices so arbitragers can profit by minting extra crvUSD, pairing it with BTC, and restoring the balance.

📉 BTC down → debt too high

Here, the opposite happens:

• LP value drops (say to $180k).

• Debt is still $100k.

• Debt ratio = 100k / 180k = 55% → leverage has increased above 2x.

Now the position is over-leveraged.

The rAMM flips the incentive. It now quotes LP slightly cheaper, rewarding arbitragers for repaying some of the crvUSD debt and bringing the ratio back to 50/50.

User flow

1. Deposit BTC → receive ybBTC.

2. Protocol borrows crvUSD, adds BTC+crvUSD to Curve, mints LP.

3. LP is collateral for the loan; 2x leverage is maintained automatically.

4. Arbitragers keeps 50/50 debt/equity ratio as price moves.

5. Burn ybBTC anytime to exit. Contracts unwind LP & debt behind the scenes; you withdraw BTC + accrued yield.

How you earn on BTC (2 options)

Option 1: Hold ybBTC (Unstaked)

• Earn real BTC-denominated trading fees from the Curve pool (after a dynamic admin fee).

• APR tends to rise when many LPs choose to stake (fewer unstaked tokens share the fee pie).

Option 2: Stake ybBTC

• Forgo trading fees; earn $YB emissions instead (rate set by gauges).

• You can lock your $YB into veYB to gain governance rights and a share of protocol revenue.

The design pushes toward a dynamic equilibrium: when more LPs stake, unstaked fee yield per token rises; when fewer stake, $YB emissions per staked token rise.

Tokenomics (veMODEL)

$YB

• Total supply: 1,000,000,000 YB

• Contract: 0x01791F726B4103694969820be083196cC7c045fF

• Purpose: governance, emissions, revenue share (when vote-locked)

$YB is the protocol’s governance and reward token. 30% of its total 1B supply (300M $YB) is allocated to liquidity mining over 4 years. Yield Basis uses a Curve-style gauge system, where veYB holders vote on which vaults receive token emissions. More votes → more $YB rewards → higher “token APR.”

So vaults compete for votes, and active governance decides where the best yields go.

Risks to watch out for

• Borrow cost vs net APR: If crvUSD borrow rates rise, net yields shrink.

• crvUSD peg: Any off-peg move can temporarily skew leverage accounting.

• Curve pool settings: If parameters are too tight, rebalancing can lag during big price moves.

The big question: Can Yield Basis really manage a 2x BTC/crvUSD LP and fully hedge out IL?

That’s the part of the protocol with a lot of moving pieces (and a lot of math). Ultimately, the numbers will tell the story. If it works as designed, it could redefine how BTC earns yield in DeFi. If not, we’ll see where the cracks start to show.

TL;DR

• 🧠 YO Report with @dl_research on Gen 3 yield optimizers.

  📊 Blog: understanding risk-adjusted yield with @ExponentialDeFi.

  ⚔️ Velora integration for seamless, optimised swaps.

  💰 New vaults: plasmaUSD (11%), mAPOLLO (13.25%), avUSDC (21.75%), wstETH UltraYield (3.28%).

🔗 Check out the full article.

In the news 🗞️

• Bitcoin-holding institutions seek yield through DeFi. Institutional investors are moving beyond passive Bitcoin exposure, exploring yield opportunities via Bitcoin-native platforms like Rootstock and Babylon. These projects enable staking, restaking, and BTC-backed stablecoins, giving treasuries and funds a way to earn yield without leaving the ecosystem. While returns remain modest (typically below 2%) the trend marks a shift toward treating Bitcoin as a productive asset, not just digital gold.

• Solana founder unveils new perp DEX ‘Percolator’. Solana Labs CEO Anatoly Yakovenko has revealed plans for Percolator, a sharded perpetuals exchange built on Solana. The protocol will feature onchain programs for routing collateral and running a decentralized perpetuals engine managed by liquidity providers. Yakovenko’s new DEX aims to reclaim market share as Solana seeks to compete with booming platforms like Hyperliquid and Aster.

• Grok and DeepSeek crush crypto trading bots with 500% gains. In a viral AI trading competition, Grok 4 and DeepSeek outperformed ChatGPT and Gemini by perfectly timing the crypto market bottom before a sharp recovery. Grok flipped its short positions into leveraged longs, posting a 500% gain within a day, while DeepSeek led overall profits with $3,650.

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