Impermanent Loss No More: How Yield Basis Reimagines Curve’s Crypto Pools

Some ideas about Curve’s latest innovation.

Yesterday Curve Finance introduced a governance proposal to extend a $60M crvUSD credit line to Yield Basis — aiming to turn crvUSD into a stronger income‑generating asset. Sentora’s research team has reviewed YIeld Basis in details over the last few weeks and I wanted to share some insights about the protocol.

The core idea of Yield Basis (YB) is to make Curve’s crypto pools behave like impermanent‑loss‑resistant carry trades by maintaining constant leverage through a special‑purpose AMM. Instead of passively absorbing price swings, YB continually rebalances the pool’s stablecoin and crypto sides to hold a target leverage profile. In Curve’s BTC‑versus‑stable topology, that means actively managing the ratio of crvUSD to a BTC wrapper so LP exposure behaves more like a leveraged basis position than a traditional two‑sided AMM deposit. In the project’s framing, this constant‑leverage design “removes impermanent loss” in Curve cryptopools by construction.

To activate this design at scale, YB asks Curve DAO for a crvUSD credit line implemented via a pre‑mint allocation. The initial request is a 60 million crvUSD limit, intended to launch three BTC pools — WBTC/crvUSD, cbBTC/crvUSD, and tBTC/crvUSD — each with deposit caps around $10 million of BTC on Ethereum mainnet. Think of the line as inventory: crvUSD that YB can borrow as needed to seed and operate these pools at their target leverage. The pools need a nontrivial stablecoin leg to function smoothly; the credit line lets YB source that leg directly from crvUSD rather than depending on lumpy external liquidity.

A central claim of the proposal is that YB is a self‑contained supply sink for crvUSD. In typical CDP or mint markets, borrowed stablecoins are sold or redeployed, exerting downward pressure on the peg unless matching demand soaks up the new supply. YB flips this dynamic: when it borrows crvUSD to balance a crypto pool, that same crvUSD sits inside the pool’s stablecoin leg. Because the time‑averaged debt roughly matches half the pool’s TVL (with the BTC side valued at price p and the stable side x ≈ p·y), YB argues it can scale its debt and TVL without pushing crvUSD off‑peg — the borrowed tokens are immediately absorbed by the pool itself.

The fee plumbing is designed to fund that constant‑leverage engine. All borrow fees inside YB go to a dedicated rebalancing budget that pays for the trades needed to keep leverage on target. On top of that, half of the trading fees generated in the crypto pools (e.g., BTC↔crvUSD swaps) also refill the rebalancing budget. The remaining half of pool trading fees are distributed as value to veYB holders (via admin fees) and to LPs who hold the liquidity (represented as ybBTC). Note the implication: Curve does not capture the borrow‑fee stream directly; its participation comes through other channels — namely stablecoin‑pool fees and an allocation of YB token emissions.

Those stablecoin‑pool fees matter because most arbitrage paths don’t stop at crvUSD. A typical trade sequence looks like WBTC → crvUSD → USDT (or the reverse), which means volume that hits the BTC↔crvUSD pool often echoes into a crvUSD↔redeemable‑USD pool. In Curve’s fee model, stable‑pool fees are split between veCRV holders and LPs — so more BTC↔crvUSD activity can translate into more throughput, fees, and therefore revenue on the stablecoin side of Curve’s stack. The proposal effectively treats those stable pools as downstream profit centers for the DAO and LPs when YB is active.

What does the revenue picture look like under realistic assumptions? The author calibrates with a long historical simulation (2023 to mid‑2025). In that backtest, the Yield Basis BTC pool shows an average fundamental APR near the mid‑teens, while correlated crvUSD stable‑pool earnings are materially smaller (on the order of tens of basis points). Put differently, the stable‑pool return rate is only a small fraction of the Yield Basis pool’s earnings before admin‑fee mechanics. Because YB’s admin fee adjusts with staking (10% minimum, potentially higher if more stake accrues), the analysis expresses Curve’s cut as a function of emissions and fee splits, ultimately landing on a range where Curve captures a significant share — roughly a third to two‑thirds — of what veYB holders capture from fees. The exact placement in that band depends on how aggressive the YB inflation is relative to system revenues and how the DAO chooses to deploy its allocation.

Emissions policy ties the model together. YB proposes to allocate to Curve an amount equal to a quarter of what YB LPs earn in YB tokens — which, on a total‑supply basis, equates to around a fifth of total YB inflation flowing to the Curve ecosystem. A likely use (subject to separate governance) is directing those YB tokens toward vote incentives on crvUSD stablecoin pools, intensifying a flywheel: more incentives → deeper stable liquidity → stronger crvUSD peg facilities → more throughput from YB‑driven trades. While the specifics can evolve, the headline is that emissions are not just internal LP rewards; they are also a strategic resource for Curve governance.

Governance and safety valves are part of the architecture. The plan references a factory that can receive the crvUSD credit line, an irrevocable minter configuration that allows Curve DAO to claw crvUSD back if necessary, and an Emergency DAO multisig designated as emergency admin. In other words, the pre‑mint isn’t a no‑strings giveaway; it is bound to a deployer factory, with governance‑controlled levers to limit damage or reclaim funds if conditions warrant. Contract references and addresses are provided for on‑chain verification.

Community feedback surfaces the core trade‑offs. Several respondents push back on the optics of “minting out of thin air,” arguing that crvUSD’s strength derives from being backed by real assets and that a pre‑mint could undercut the brand — even if operationally the borrowed crvUSD will be backed by BTC as it enters pools. One suggested mitigation is a pre‑deposit vault model, where funds are committed before minting. Others counter that the pre‑mint behaves like a borrowing cap and note that existing mechanisms already operate with pre‑allocated crvUSD that isn’t counted as circulating supply. There are also calls — up to and including from core contributors — to take a phased rollout: start smaller, scale gradually as security and market behavior validate the model. The thread shows a healthy tension between speed‑to‑market and conservative monetary design.

A sharper critique targets two modeling assumptions. First, if arbitrageurs can inventory some crvUSD cheaply (say a few bots each holding a float), not every BTC→crvUSD trade will be followed by a crvUSD→USDT hop — cutting the echo volume (and thus fee revenue) that the analysis attributes to stablecoin pools. Second, fee competition matters: if a concentrated‑liquidity venue underprices crvUSD/USDT relative to Curve’s baseline, a nontrivial share of that echo volume could detour off Curve, pressuring the revenue projections. Both points caution that “all cryptopool volume begets equivalent stable‑pool volume on Curve” is an optimistic simplification; in practice, path dependence, gas, and fee competition will clip some of that flow.

So what’s the net of it for Curve? If it works as intended, YB promises three things: (1) internal demand for crvUSD that scales with pool TVL without stressing the peg, because the borrowed crvUSD lives inside the pools; (2) incremental fee throughput on crvUSD stablecoin pairs that pays veCRV and LPs; and (3) a recurring stream of YB emissions funneled to the DAO, potentially amplifying vote‑incentive strategy around crvUSD liquidity. In exchange, Curve takes on the standard suite of smart‑contract and market‑structure risks (bugs, stress‑regime rebalancing costs, liquidity fragmentation), plus a brand risk around using a pre‑mint mechanism — even if the on‑chain guardrails and backed‑when‑used behavior mitigate the monetary side.

The conservative path is a staged deployment with caps tied to concrete KPIs: peg behavior, realized rebalance costs, fee capture on Curve versus competitors, and security milestones (audits and bounties). If those check out, the constant‑leverage engine could become a durable sink and throughput generator for crvUSD. If they don’t, the governance levers — caps, minter controls, emergency admin — offer ways to decelerate or unwind without destabilizing the stablecoin. That balance — ambition with hard guardrails — should guide how much credit to extend, and how fast.

Impermanent Loss No More: How Yield Basis Reimagines Curve’s Crypto Pools was originally published in Sentora on Medium, where people are continuing the conversation by highlighting and responding to this story.