• 5.4–9.9% BTC APY (TRD ~0% as of 26/04/2026), $3.84M in fees distributed to $YB lockers

• No security incidents across the protocol or its dependencies

• 99% TVL retention, while the broader market lost 80B$+ (~50% since Oct 10)

Launching the brand new yield primitive on a Bear market works as a genuine stress test.

Most innovations work on paper.

But do they hold when:

• markets are under extreme stress

• the cybersecurity landscape is hostile (open-source code + AI widely accessible)

• DeFi sentiment is pessimistic, with persistent risk-off and capital outflows

Yield Basis architecture and yield model have proven robust in these conditions.

Below, we review performance, the security stack, and the protocol’s next steps.

The yield primitive under Bear stress test

Since deployment, Yield Basis pool model was tested by the extremely volatile market which led to multiple improvements targeting pool operation and $crvUSD peg support.

Below we present the timeline of protocol’s journey and key events:

Extreme market volatility began immediately after deployment, leading to the rollout of v2 pools (now live) and the development of v3 pools (next-gen design with significantly shorter TRD ranges).

Despite the BTC downtrend, multiple DeFi exploits, and persistent risk-off sentiment, Yield Basis retained 99% of TVL and generated up to 9.9% native BTC yield for LPs.

TRD: After BTC dropped from 90k$ to 60k$ in just several days, ybBTC LP positions experienced up to ~17% TRD that recovered in ~11 weeks at ~$76k price. This practically demonstrates that TRD is not IL: IL could recover only when prices are back to the initial values.

*TRD (Temporarily Redemption Discount) is a temporary reduction of LP position value due to YB Pool imbalance caused by rapid BTC price movements. The rebalancing process brings TRD back to zero over time.

LPs remained with Yield Basis during the TRD times. Even after the recovery phase and subsequent withdrawals, Yield Basis initial pool capacity remains approximately 99% utilized. Such a behavior triggered additional R&D and v3 pools creation (with much faster TRD recovery) as a result.

During such complicated times for Defi (-50% TVL outflow since 10 Oct), Yield Basis operates the most liquid volatile pool in the market and ranks #2 across all liquidity pools (great to see that #1 is Curve):

Throughout this period, the YB DAO captured $3.84M of protocol fees on top of LP yield.

The chart below shows key BTC volatility events versus DAO fees (through Feb 17):

YB DAO fees vs. BTC Volatility Index (green line). Source: Valueverse MID Q1 YB Report

There were no security incidents with Yield Basis itself or any of its dependencies during the entire operational timeline.

Yield Basis Security Stack

The security stack is based on three core ideas:

• Battle-tested infrastructure as a key partner - Curve

• Decentralization-first approach - DAO control, no multi-sig dependency, no centralized infrastructure used

• Dependencies minimalism - less is more

Below we explore it in detail.

Yield Basis dependencies

As shown, the only dependency beyond Curve is BTC wrappers. There is no alternative way to deploy BTC on Ethereum, so the pools rely on industry-standard assets widely used across lending markets and DEXs (cbBTC, WBTC, tBTC).

The only multi-sig used in the stack is The Emergency Admin. It can pause ("kill") individual markets and force emergency withdrawals. It doesn’t have an option to access users' funds or update any protocol parameters; it is an emergency-only tool that can pause markets.

The only authority on contracts code is YB DAO, requiring an onchain governance process for every update. Our vision is that such an approach is a way how Defi must operate to preserve user’s safety.

The next steps for the protocol

The Bear market triggered further development, leading to the introduction of Hybrid Vaults and the v3 pool design.

These upgrades are aimed at delivering a BTC yield product that not only captures fees, but also features a significantly improved position profile (shorter TRD ranges) while maintaining stability of the crvUSD peg during operation.

Below we present summary for the future protocol expansion:

Yield Basis next steps:

• new assets are coming to Yield Basis with v3 pools

• existing pools will migrate to v3 standards

• all pools will have Hybrid Vault feature to scale TVL safely

New v3 pools and Hybrid Vaults are designed to drive additional TVL inflows, further strengthening Yield Basis as a provider of most liquid BTC and ETH pools in Defi.

It’s worth mentioning that besides being a liquidity backbone for Ethereum Defi, the pools generate yield without impermanent loss.

This article is for informational purposes only and is not financial, legal, tax, or investment advice. Nothing herein is an offer, solicitation, or recommendation. Past performance and protocol metrics are not guarantees of future results. DeFi involves risks, including potential loss of capital. Future upgrades are subject to audits, governance, market conditions, and applicable laws.

After market volatility, the value you would receive if you withdrew immediately can temporarily drop below your position's fundamental value. That temporary gap is the Temporary Redemption Discount (TRD).

TRD is not a permanent loss. The leveraged position needs time to rebalance after volatility. Once it adjusts, this discount closes. Withdrawing during TRD locks in the discount as a real loss; waiting allows your position to recover.

TL;DR: TRD is a short-lived discount that appears after price swings. It exists because the Curve pool and LEVAMM need time to rebalance. The same volatility that creates TRD also generates the trading fees that close it.

How Yield Basis works

To understand TRD properly, you need to know the basics behind Yield Basis.

When you deposit 1 BTC, this will happen to create your position.

1. Yield Basis takes your BTC and borrows an matching value of crvUSD (Curve's stablecoin) from the protocol.

2. Both your BTC and the borrowed crvUSD are deposited together into a Curve pool as liquidity.

3. The Curve pool issues LP tokens in return. These LP tokens are held as collateral in a contract called the LEVAMM alongside the crvUSD debt.

You now have a leveraged liquidity position: Curve LP tokens as collateral, crvUSD as debt. The LEVAMM targets a debt-to-value ratio (DTV) of 50%, where debt equals half the collateral's value.

This 2x leverage also serves another important purpose, it's the exact multiplier needed to eliminate impermanent loss.

When the price of the underlying asset (like BTC) moves, the DTV drifts away from 50%. Two things then need to happen to restore the system:

• Arbitrageurs trade the LEVAMM back toward the 50% DTV target, earning fees in the process.

• The Curve pool moves its internal price peg (price_scale) to reflect the new market reality.

TRD happens while these adjustments are still in progress. During that window, the yb-LP is temporarily priced below its fundamental value.

What Causes TRD?

TRD is primarily caused by the state of the underlying Curve pool. Every part of the system, the LEVAMM collateral value, the LP oracle, and what you receive when you withdraw, is influenced by the underlying Curve pool.

the following contribute to TRD:

1. The Curve pool becomes imbalanced

When the price of BTC drops, arbitrageurs sell BTC into the pool and take crvUSD out (reversed when BTC increases). This leaves the pool holding more BTC than crvUSD. The pool is now imbalanced.

This influences withdrawals: an imbalanced pool introduces slippage, giving you a less favorable rate when converting yb-LP back into BTC.

Additionally, the LEVAMM collateral is made of the Curve pool's LP tokens. The value of those LP tokens depends on the pool's internal state, which includes the balance between BTC and crvUSD. So it's not only the withdrawals. Imbalanced pools also reduce the value of the Curve LP token, which feeds directly into the yb-LP price.

While the pool is imbalanced, the pool's price_scale (the internal peg where liquidity is concentrated) lags behind the market. While price_scale remains stale, the pool's liquidity stays centered at the old price, which means withdrawals incur more slippage than they would if the pool had already moved its internal peg.

2. Leverage Drift in the LEVAMM
   The LEVAMM holds your Curve LP tokens as collateral against the crvUSD debt, targeting a DTV of 50%. When BTC drops in value, the collateral (Curve LP tokens) loses value while the debt stays the same. The DTV rises above 50%.

The further DTV moves from 50%, the larger the discount.

The LEVAMM is itself an AMM that trades between crvUSD and LP tokens. It has its own internal price derived from the current debt and collateral amounts. When DTV drifts above 50%, the LEVAMM's internal price of LP tokens drops below the oracle price, creating an arbitrage opportunity.

Arbitrageurs restore DTV by sending crvUSD to the LEVAMM and receiving LP tokens in return. This trade reduces the LEVAMM's debt (the crvUSD sent in cancels against the outstanding debt) while also reducing the collateral (LP tokens leave). But the debt shrinks proportionally more than the collateral value, so DTV moves back toward 50%. Each of these trades pays a fee that accrues to LPs.

This leverage drift is itself a consequence of the Curve pool imbalance. The LP tokens that make up the LEVAMM collateral are valued by the pool's own state. When the pool is skewed, the LP token is worth less, and that is what causes DTV to drift in the first place.

Both factors are interconnected. The pool imbalance reduces LP token value, which causes the LEVAMM's DTV to drift, which widens the discount further. Recovery requires both the pool to rebalance and the LEVAMM's DTV to return to 50%.

What Happens During Volatility?

When the price of BTC were to drop 10%, two things happen simultaneously:

Inside the Curve pool, price_scale is still centered around the old price. Since the pool is offering rates as if BTC is worth more than the market says, arbitrageurs sell BTC into the pool and take crvUSD out. This continues until the pool's spot price converges with the rest of the market, leaving the pool imbalanced with more BTC than crvUSD. Meanwhile, price_scale remains stale because moving concentrated liquidity has conditions that must be met before it can move (see below).

Inside the LEVAMM, the collateral (LP tokens) has lost value but the debt hasn't changed. The DTV has moved above 50%, and the LEVAMM's internal price of LP tokens has dropped below the oracle price. Arbitrageurs see this opportunity: they send crvUSD to the LEVAMM and receive LP tokens at a price below the external market. This trade reduces the LEVAMM's outstanding debt, pushing DTV back toward 50%. Each such trade pays a fee that goes to LPs.

How the Pool Recovers Its Peg

To understand why recovery takes time, you need to know how the Curve pool manages its internal pricing. The pool uses three price references:

• last_prices — The spot rate from the most recent trade, updated on every swap. It reflects where the market is right now but is also manipulable since a single large trade can distort it.

• price_oracle — A smoothed average (EMA) of last_prices. It updates once per block and moves toward last_prices gradually. The smoothing is intentional: it resists manipulation at the cost of being slower.

• price_scale — The internal peg where the pool concentrates its liquidity. Think of it as the pool saying: "I believe the price of BTC is here, so I'll make my best rates available around this range". This is the slowest to move, and the one that matters most for TRD recovery.

For price_scale to move, the pool needs to be able to afford the cost of shifting its liquidity concentration. Specifically, the pool needs to have earned enough profit from trading fees to absorb the cost. price_scale lags behind deliberately; this is a safety mechanism to prevent the pool from being tricked into moving concentrated liquidity too fast.

1. price_scale needs to converge with price_oracle. Every trade helps nudge them closer together, but price_scale moves gradually by design. Making price_scale move fast would make it too easy to manipulate.

2. The gap must exceed a minimum adjustment_step. The pool only adjusts price_scale when the distance between price_oracle and price_scale is large enough for a move. This prevents wasteful, tiny adjustments.

3. The pool must be able to afford the move. Moving price_scale costs the pool value (its virtual_price can drop when liquidity concentration shifts). The pool only allows this if accumulated trading profits can cover the cost. The specific rule: the pool must retain at least half of all profits earned since launch after moving concentrated liquidity.

Until all three conditions are met, price_scale stays where it is. The pool's liquidity remains concentrated at the old price, withdrawals incur slippage through that misaligned liquidity, and TRD persists.

YB: crvUSD-wBTC pool

How Recovery Works

Recovery is funded by multiple fee sources coming from the very volatility that caused the imbalance. The most volatile days produce the biggest TRD but also earn the most fees.

1. Curve pool trading fees — Every swap through the Curve pool generates fees that increase virtual_price, creating the profit buffer the pool needs to move concentrated liquidity.

2. LEVAMM arbitrage fees — When arbitrageurs trade with the LEVAMM to restore DTV, they pay a fee on each trade. These fees accrue directly to LPs.

3. Interest fee donations. — The LEVAMM charges interest on the borrowed crvUSD. This interest is donated directly into the Curve pool. "Donated" means the interest is added as liquidity, but the resulting LP tokens are not given to anyone. Instead they go into a time-locked buffer that releases gradually. The effect is that the pool's virtual_price increases for existing holders, giving the pool the profit buffer it needs to move price_scale.

During recovery, the protocol waives its admin fee on any value that accrues below the high-water mark. Only profits above the high-water mark have the admin fee applied. This means during the recovery period, a larger share of fees flow to LPs rather than the protocol.

You can watch the redemption PPS converge with the fundamental PPS on the analytics page.

Pangea report
Pangea report on FXSwap

crvUSD Peg Influence on TRD

TRD can be amplified when crvUSD deviates from its $1.00 peg. The LP oracle multiplies by the aggregated crvUSD/USD price, and the LEVAMM's value is denominated in crvUSD. If crvUSD trades below $1.00, the LP oracle reports a lower value, widening TRD.

This resolves on its own when crvUSD returns to its $1.00 peg. Because crvUSD has its own stabilization mechanisms (Peg Keepers, Monetary Policy), these deviations tend to be short-lived, but they can temporarily make TRD look worse than the actual pool state warrants.

Concentrated Liquidity Parameter Influence on TRD

Yield Basis has pools for different BTC wrappers as well as WETH, but not all pools experience TRD equally.

The WETH pool composition looks much more balanced compared to the BTC wrappers, yet it has the worst TRD. To understand why, we need to look at one of the parameters in Curve pools called A (the amplification coefficient).

A controls how tightly liquidity is concentrated around price_scale. Think of it as a dial between two extremes:

• Turn it all the way up and you get something close to a stableswap, where nearly all liquidity is concentrated around a tight price range. Great rates near the peg, but close to nothing as price moves away.

• Turn it all the way down and you get something close to a Uniswap V2 pool, where liquidity is spread evenly. Less capital efficient but more robust to price movement.

BTC pools use higher A because BTC is less volatile compared to ETH. Tighter concentration means better execution on trades around the current price.

ETH pools use lower A because ETH is more volatile, requiring wider liquidity distribution.

Here is where this connects to TRD:

Moving price_scale to a new price has a cost. When the pool moves concentrated liquidity, it recomputes the pool's invariant at the new price and virtual_price (the protocol's internal measure of value per share) drops. That's why you can see PPS drop.

A high A pool concentrates liquidity more tightly, so the cost of moving concentrated liquidity is more expensive. In the BTC pools where A is high, price_scale takes longer to catch up because the pool needs to accumulate more profit before it can afford to move concentrated liquidity. Meanwhile, it remains profitable to sell BTC into the pool, which is why the balance is skewed.

A low A pool spreads liquidity wider, so moving concentrated liquidity is cheaper. price_scale moves faster, virtual_price adjusts, and TRD shows up immediately in the oracle price. This is why the ETH pool can show worse TRD despite appearing more balanced: the lower A lets price_scale update more quickly, so the LP oracle reflects the current state sooner.

What Happens If You Withdraw During TRD

If you withdraw during high TRD, you get less BTC per yb-BTC than you would once the position has fully rebalanced.

When you withdraw, the system removes your proportional share of LP tokens from the LEVAMM, repays the corresponding crvUSD debt to the Curve pool, and returns the remaining asset (BTC) to you. During TRD, the Curve pool is imbalanced and price_scale is stale, so this conversion gives you a worse rate than it would under normal conditions.

Withdrawing during TRD locks in the temporary discount as a real loss. If you wait, the LEVAMM's debt ratio converges back toward 50%, the Curve pool re-balances, and the yb-LP returns to tracking BTC plus accumulated fees.

Your position continues to earn fees during TRD. The volatility and arbitrage activity that created TRD are also creating fees that help fund recovery.

Frequently Asked Questions

How big can TRD get?
TRD size depends on the magnitude and speed of the price move, the pool's A parameter, and how quickly arbitrageurs step in. Larger, faster moves produce bigger TRD. The analytics page shows current TRD for each pool.

How long does recovery take?
Recovery depends on trading volume and continued volatility. Higher volume generates more fees, which funds faster re-balancing. There is no fixed timeline; it is driven by market activity. In the past we have seen that it can take up to a month to restore TRD.

Can TRD fail to recover?
Yield Basis is designed so that the same volatility creating TRD generates recovery fees. However, in the unlikely event where trading volume dries up entirely (no volume
whatsoever), recovery would slow. The protocol includes an emergency withdrawal mechanism as a safety net if the system enters a critical state.

Do I still earn fees during TRD?
Yes. Your position continues earning Curve pool trading fees, LEVAMM arbitrage fees, and interest donations throughout the TRD period.

What do I get back when I withdraw?
You receive your original asset (e.g., BTC). The system handles the debt repayment internally: it removes LP tokens from the Curve pool, repays the crvUSD debt, and returns the remaining BTC to you.

The Bigger Picture

While TRD can look alarming at first, the protocol is doing exactly what it is designed to do.

Leverage is the tool that eliminates impermanent loss. But leverage also amplifies any short-term fluctuations in the underlying Curve pool's state. The same volatility that creates TRD also generates the fees to close it.

As an LP, withdrawing into the discount turns a temporary situation into a permanent one. The better approach: visit the analytics page, watch the pool composition rebalance, and wait for redemption PPS to converge with fundamental PPS. Once it does, your yb-LP reflects the underlying asset plus all accumulated fees.

• With each raise, the cap was filled in a matter of minutes

• Demand for IL-free yield far exceeds the TVL that Yield Basis can accept

• Thus, the primary focus is safe TVL scaling

The reason for the TVL limit

By capping YB pools, Yield Basis limits its influence on the $crvUSD peg and ensures safe utilization of Curve’s infrastructure:

• IL is mitigated by creating and maintaining 2x leverage in YB pools.

• $crvUSD borrowed from Curve DAO is used for liquidity and leverage purposes.

• Swaps in YB pools trigger $crvUSD-stable swaps at Curve; significant BTC or ETH volatility could influence the $crvUSD peg

The YB<>$crvUSD interaction was recently covered in a comprehensive analysis by Llamarisk. It emphasizes the necessity of growing $crvUSD supply (minted by independent users) among other recommendations.

The observation on the possible limit for Yield Basis TVL cap calculated based on the current state of PegKeepers pools now is approximately $25m lower than the actual TVL.

https://gov.curve.finance/t/heuristics-for-yieldbasis-to-roll-out-its-credit-line/10985

These results clearly demonstrate the following: Yield Basis requires a solution to provide additional support for the $crvUSD peg beyond the current subsidies (YB emissions provided as bribes to $crvUSD pools).

Proposed scaling approach:

$crvUSD Hybrid Vault

Hybrid Vault is a vault that directly links $crvUSD peg support action with controlled TVL onboarding into the Yield Basis pool.

The core idea is to enable users to enter the Yield Basis pool by establishing a Personal Cap, determined by their contribution to $crvUSD peg stability:

$crvUSD deposit & stability contribution

• Users deposit $crvUSD into the Hybrid Vault.

• Deposited $crvUSD is automatically staked into $scrvUSD, generating yield (currently approximately 2.5% APY).

Personal Cap Creation

• Upon deposit, a Personal Cap is created automatically.

• The Personal Cap equals 2.5 × the deposited $crvUSD amount.

• This cap defines the maximum amount of capital the user can onboard into the Yield Basis pool outside of the usual caps.

Withdrawal mechanics

• Withdrawal of $crvUSD from the Hybrid Vault is gated by withdrawals from the Yield Basis pool.

• To withdraw X amount of $crvUSD, the user must first withdraw 2.5*X worth of assets from the Yield Basis pool, provided that there was no free cap beforehand.

• Asset values are calculated at the exchange rate at the time of withdrawal.

Example user journey:

• The user deposits 1,000 $crvUSD into the Hybrid Vault (which is deposited into $scrvUSD thereafter)

• The user deposits $2,500 worth of WETH into the WETH pool.

• To withdraw 50% of the $crvUSD position (500 $crvUSD), the user must first withdraw $1250 equivalent to the existing WETH position, calculated at the prevailing exchange rate at the time of withdrawal.

Hybrid Vault effect on $crvUSD

The llamarisk report primarily emphasizes the need for additional mint markets to preserve $crvUSD stability:

“This is because mint markets remain the most direct revenue driver for crvUSD (creating demand for the stablecoin via scrvUSD).”

The Hybrid Vault serves a very similar purpose:

• It creates direct demand for the stablecoin, as participation requires $crvUSD deposits (which must be directly minted or purchased by the user).

• It can be considered as an alternative revenue driver for $crvUSD, since TVL deposited in case of a Personal Cap generates revenue for $crvUSD (which is tied to $crvUSD ownership & usage).

Explanation of $crvUSD alternative revenue driver: user deposits 1,000 $crvUSD and $2,500 WETH to the Vault.

The user's annual yield is a theoretical calculation that assumes the $scrvUSD Vault reward APY and the WETH price remain stable and that the WETH earns an 8% APY, as in the simulations:

• $25 from $scrvUSD and 8%, or $200, from WETH

• If the user deposits $1,000 in $crvUSD into a low-risk, stablecoin yield option, such as the $crvUSD-$USDC pool at StakeDAO, the revenue will be ~7%, or $70. The $ETH LST revenue will be ~2.5%, or $62.5. This gives us a total of $132.5.

• Therefore, by owning $crvUSD and utilizing the unique option to participate in the Yield Basis Pool via the Hybrid Vault, the user generated an additional $92.5 in yield.

So, Hybrid Vault replicates the core economic mechanics of the mint market, incentivizing $crvUSD demand through a revenue-generating mechanism.

The Llamarisk analysis further states:

“Additional mint markets: In addition, we believe there is a need for additional mint markets. This enables use cases where leverage is, ideally, independent of market cycles to avoid contraction in bearish conditions and attract size.”

The introduction of the Hybrid Vault directly aligns with it, as it:

• Enables demand mechanism that is less dependent on market cycles

• Provide alternative, non-cyclical pathway for scale $crvUSD

It becomes possible since Yield Basis pools generate yield from volatility, not from market direction itself.

So, the Hybrid Vault is not only a solution to scale Yield Basis, it can be also considered as a solution to enrich $crvUSD yield options.

Proposed implementation pathway

The Hybrid Vault design was initiated earlier, and its code is currently under audit.

After the audit is completed, the following steps will be taken:

First, creating the official YB DAO proposal containing the specifications and initial cap to start using the Hybrid Vault

• After governance approval, it will be implemented

• Hybrid Vault deposits & UI will be enabled right after proposal passes

Note that:

• YB DAO decides on Hybrid Vault Cap for each pool, since the protocol still has an overall TVL cap, as it is limited primarily by the $crvUSD credit line from CurveDAO.

• The vision is to gradually increase the utilization of the credit line by Hybrid Vault until the $1 billion limit is reached.

After reviewing the results of the Hybrid Vault implementation and its impact on the $crvUSD peg stability, YB DAO will make decisions regarding the next steps for the $crvUSD credit line.

This publication is provided for informational purposes only and does not constitute financial advice, investment advice, or an offer or solicitation to acquire any digital asset. All mechanisms described are subject to governance approval, smart-contract logic, and applicable regulatory requirements, including MiCA and AML/CFT frameworks. Any examples or calculations are illustrative and non-binding; past or hypothetical performance does not guarantee future results.

The best time to go beyond Bitcoin is now. The ticker is $ETH.

Why Ethereum needs IL-free pools

Ethereum utilization in DeFi is significant. However, 99% of it is used for staking, restaking, or lending. The largest on-chain ETH-stable pools have a TVL of ~$235 million.

https://defillama.com/yields?token=WETH&category=Dexs

Why only a tiny fraction of ETH deposited to AMM pools? The answer is Impermanent Loss.

Despite high yields in those pools, the overwhelming majority of ETH holders prefer to safely stake ETH, not exposing the possible upside to risks.

Solving impermanent loss is the next chapter of Ethereum Defi adoption.

Ethereum pools simulations

For the backtesting, two years of historical ETH price data were taken (2024-2026); and the performance of a Yield Basis system (Cryptopool + Releverage AMM) based on that data.

As a result, the LP position generated ~16% returns over two years:

https://github.com/yield-basis/yb-simulations/blob/master/ethusd/2-years-up/24.%20releverage%20A2.5%20dynfee%20long/growth.png

The parameters for the pool and the associated infrastructure were as follows:

• Cryptopool parameters

• Price scale adjustment step upper bound: 0.5%

• Liquidity concentration parameter A = 2.5

• Minimal fee (balanced state): 0.43%

• Maximum Fee (imbalanced state): 2.4%

• Fee gamma (dynamic fee curve shape parameter): 0.0023

• EMA half-lfie: 600 s (1/e time = 866 s)

• Borrow/refuel rate: 0.55%

• Initial invariant (D): 2e7 USD

The Pool imbalance vs. ETH spot price is presented below:

Key simulations results:

• Dynamic swap fee in 0.43-2.4% range maximize LP profit by minimizing value extracted in arbitrage trades

• During the long-lasting periods of pool imbalance LPs consistently generate fees resulting in position growth

• The average APY was 8% in 2024-2026

The results in this section are for educational purposes only and do not constitute investment advice. Backtesting results do not guarantee future performance.

The role of Yield Basis pools in Ethereum

The proposed pool is free from impermanent loss, which benefits long-term ETH LPs.

However, it has a dynamic fee ranging from 0.43% to 2.4%, which is higher than the typical Uniswap fee of 0.05% to 0.30%. As mentioned previously, the Yield Basis pool fee structure is optimized to maximize LP returns and minimize arbitrage value extraction.

We consider pools with this structure to act as a Liquidity Backbone.

They will facilitate large trades and liquidations during periods of high volatility, as well as increase the instant availability of ETH liquidity within the ecosystem. Small, routine swaps could use pools with lower-fee trades.

ETH Pool: the launch

Prior to moving forward to Ethereum pool launch, the underlying Curve cryptopools infrastructure was updated (read the recent Curve DAO proposal). This update improves efficiency for newly-launched pools decreasing the value extracted through arbitrage swaps.

We propose using WETH as the deposit asset in the pool: it is the most widely adopted ERC-20 version of ETH and offers superior arbitrage options (instant & free redemption).

The pool launch process:

• The official proposal for launching WETH-crvUSD pool will be added to the YB DAO governance

• Once proposal is passed, the pool will be deployed and added to the gauge (what enables emissions based on veYB voting for this pool)

Please note that the pool will have a limited capacity and will be available on a first-come, first-served basis.

UPDATE: Create yb-WETH pool with $25M cap proposal was executed at 07.01.2026, 16:30:59 UTC

Disclaimer: YieldBasis operates in accordance with applicable MiCA and AML/CFT requirements. This publication is intended solely for informational purposes and does not constitute financial advice, solicitation, or an offer to invest. Past performance does not guarantee future results. All distributions are executed programmatically on-chain and remain subject to governance approval and smart-contract conditions.

• Activated Governance proposal introduces the Fee Switch - the distribution of captured fees to veYB holders

• The 17.13 BTC (approximately ~$1.578m) of collected fees began to be distributed to veYB holders

• The Fee Switch enables the full scope of YB utility and has a synergistic impact on YieldBasis DAO, Curve DAO, and crvUSD

Today, we are thrilled to announce the YB Fee Switch - a long-awaited protocol milestone. This article focuses on explaining the Fee Switch activation, distribution, and claim processes, as well as the impact of YB’s full utility activation

Details:

1. YieldBasis fees explanation

2. YB Fee Switch: activation, distribution, and stats

3. The impact YB fee switch

YieldBasis fees explanation

YieldBasis charges fees on trading activity in liquidity pools. This can be accounted as protocol revenue, which is further split between liquidity providers and YB DAO governance participants (veYB holders). The exact split proportion is algorithmic and will be explained below.

YieldBasis LPs have two options for generating yield from provided liquidity: (a) hold the ybBTC LP token and receive BTC-denominated trading fees (b) stake ybBTC, forgo BTC-denominated trading fees and participate in YB emissions.

The exact fee split (effective admin_fee) depends on the ybBTC stake_rate, or the share of ybBTC LPs receiving YB token emissions:

For example, when 50% of ybBTC is staked, unstaked tokens receive 64% of all fees and veYB holders receive the remaining 36%.

Fee Switch event enables distribution of the charged admin fee to YieldBasis DAO participants (veYB holders).

Note that YB tokens not locked in veYB do not receive fees.

You can lock your YB on the YB Lock Page.

Fee Switch: activation, distribution, and stats

Fee Switch activation

To activate the Fee Switch and initiate the distribution of fees to veYB holders, YieldBasis DAO approved this action via the governance proposal. Already passed.

veYB holders are the recipients of all fees, both those already captured and those collected in the future. The FeeDistributor contract will receive fees collected from all pools, including legacy pools, new implementation pools, and any new deployments.

The FeeDistributor contract temporarily holds BTC-denominated fees owned by veYB holders that await claiming. When fees are received by the FeeDistributor, the fee distribution can be initiated. Thus, the contract balance is a sum of fees that are already available for claiming by veYB holders (distribution was initiated) and those that are awaiting distribution initiation.

Fee Switch: distribution to veYB holders

In order to initiate the distribution of fees from the FeeDistributor contract, the permissionless fill_epochs() function must be called. The existing (undistributed) fees will be distributed equally over four future epochs. Each epoch lasts one week and starts at 00:00 UTC on Thursdays.

For example, there is 1 BTC in the FeeDistributor contract and someone calls the fill_epochs() function. As a result, 1 BTC will be assigned for equal distribution across the next four epochs, at a rate of 0.25 BTC per epoch. Fee distribution is only scheduled exclusively for future epochs, meaning that if fill_epochs() is called on Wednesday, the next four epochs starting at 00:00 UTC on Thursday will be used.

The fees claiming mechanics for veYB holders:

• veYB holders can claim fees at any time

• To initiate a claim, the user must call the claim function. If the user has never claimed fees before, all epochs starting from the first one are checked for potential fee claims. If fees have been claimed before, it checks the epochs starting from the one after the most recent claim.

• For each epoch, the user’s veYB share is calculated as the ratio of the user’s veYB balance to the total veYB in that epoch. As a result, the veYB holders receive a share of the fees scheduled for distribution according to their veYB share for that epoch.

The Claim option available at YB Lock Page.

YieldBasis fees stats

Fees will be available for veYB holders starting with the Fee Switch. These fees are comprised of legacy pool collected fees, new implementation pool fees (which have already been transferred to the Yield Basis: DAO contract), and undistributed fees from existing pools:

The impact of YB Fee Switch

Upon the Fee Switch, fees generated by the protocol were technically attributed to the Yield Basis: DAO contract and veYB holders could use only the share of planned utility - vote on YB emission distribution & protocol decisions via vote-escrowed governance mechanics.

After the Fee Switch event, veYB holders will have an opportunity to participate in protocol fee distribution, claiming their share of captured fees.

This will not only deliver the planned YB functionality to YieldBasis veYB lockers, but will also have the following impact on YieldBasis and Curve ecosystems:

• By activating the complete YB utility the revenue loop in the token economics will close, enabling the system to operate as designed

• It means that CurveDAO veCRV governance participants receive YB that earns BTC fees (as veYB position), which strengthens the value proposition for veCRV governance allocating rewards to crvUSD pools

• As a result, the synergistic effect of veYB fees on veCRV voter decisions and ultimately crvUSD CRV rewards, liquidity depth, and peg is possible

YieldBasis operates in accordance with applicable MiCA and AML/CFT requirements. This publication is intended solely for informational purposes and does not constitute financial advice, solicitation, or an offer to invest. Past performance does not guarantee future results. All distributions are executed programmatically on-chain and remain subject to governance approval and smart-contract conditions.

1. Migration Issues: "Debt too high," "Slippage" Errors, and Full Pools

a) User Question: I am trying to migrate from the old pools (V1) to the new ones, but the transaction fails. I get "Debt too high" error, or simply cannot deposit funds. Why isn't the migration working, and what should I do?

Answer: The new pools have strict caps on deposit volume and the overall leverage (crvUSD debt limit). Since many users have already migrated and the price of Bitcoin has risen, the pools have reached their current limits. The error "Debt too high" or the inability to deposit means that the system temporarily has no space for new funds.

• Reason: The pools lack sufficient free crvUSD to create new positions due to the overall debt limit and the imbalance caused by the rising or falling BTC price.

• Solution: You must wait until someone withdraws funds from the pool (freeing up space) or until the Bitcoin price corrects, which will change the pool's balance. Migration is not time-limited, so it is recommended to try again later.

• Note: The limits (caps) will only be increased after the market stabilizes and the current migration phase is complete.

b) User Question: I am trying to migrate from the old pools (V1) to the new ones, but the transaction fails. I get "Slippage" errors, or simply cannot deposit funds. Why isn't the migration working, and what should I do?

Answer: You can also try slightly increasing the slippage if the error is related to that.

It’s better to migrate from V1 to V2 when the pool is close to a 50:50 balance to reduce slippage.

2. Balance Decline and "Losses" in New Pools

User Question: I see that my balance in BTC has decreased (a drawdown of about 1-3%). Why am I losing money, and is this impermanent loss (IL)?

Answer: The observed drawdowns are expected short-term fluctuations related to the pool imbalance (e.g., asset ratio of 60/40 or 70/30) amid high market volatility. This is not a realized loss but a temporary deviation in value.

• Mechanism: When the BTC price changes sharply, arbitragers must rebalance the pool to return it to a 50/50 ratio. Until this happens, you may see a "paper" loss.

• Outlook: The balance is expected to recover (repeg) through accumulated trading fees and the actions of arbitragers. The administration confirms that these fluctuations are "reversible."

• Terminology: This is not classic Impermanent Loss but rather a TRD: "Temporary Redemption Discount".

Description in the UI: TRD: “Pools may become imbalanced during high volatility, causing redemption discounts. Arbitrage and swaps naturally rebalance them with time, reducing the discount to 0

As a result, we get two PPS (price-per-share) indexes:

• Fundamental — the one you get when withdrawing at a 50:50 pool balance
• Withdrawable — the one you get when withdrawing at any imbalance

The difference between them called Temporary Redemption Discount, or the FUD-generation mechanism (a joke from the chat).

2.1. Mechanism of Drawdown (Rebalance Lag)

YieldBasis is based on using leverage through Curve pools (BTC/crvUSD). The drawdown occurs due to the temporary inefficiency of the pool during moments of high volatility:

1. Imbalance: A sharp movement in the BTC price (rise or fall) leads to a skew in the asset ratio within the pool (e.g., 70% crvUSD and 30% BTC).

2. Lag: The interface values your share (LP token) based on the current, imbalanced state of the pool, which shows a decrease in value (1-3% drawdown).

3. Dependence on Arbitrage: The protocol relies on arbitragers to execute profitable swaps to return the pool to a 50/50 balance. Until this occurs, the imbalance and the "paper loss" persist.

2.2 The Reason for Prolonged Lag: The "Rebalancing Budget" Mechanism

A prolonged delay (days or weeks) is not related to high gas costs but is explained by the protocol's mathematical rebalancing model:

• "Rebalancing Budget": Rebalancing only occurs when the accumulated fees (budget) are sufficient to cover the loss incurred from the price movement.

• Unidirectional Movement (Monotonic Trend): If the BTC price moves only in one direction, the "cost" of rebalancing (the divergence loss to be realized) grows faster than fees accumulate, causing the pool to get "stuck."

• Conclusion: The system protects itself from realizing excessive losses, waiting until an adequate "cushion" (fees) accumulates or until the price corrects.

Michael Egorov

@newmichwill

Something I did not plot before for @yieldbasis simulations - difference between fundamental value and how much you can redeem over time. Here's what one can expect typically!

When volatility is high - earnings are fastest, but redemption dips are the deepest

28

2:38 PM • Nov 22, 2025

2.3. Scenarios for Recovery: From Negative to Positive

How quickly the balance is restored depends on market action (volatility and trade volume):

• Negative Scenario (Stagnation): The price continues a strong one-way trend (down-only/up-only) with low volumes. Fees accumulate slowly, and the budget for rebalancing is met slowly, keeping the pool in a drawdown for weeks.

• Neutral Scenario (Gradual Recovery): The market stabilizes or moves sideways. Arbitrage becomes mildly profitable. The pool gradually returns to balance over several days as fees trickle in.

• Positive Scenario (High Volume Event): A sharp price movement triggers massive liquidations on other platforms (like Compound/Morpho), which are routed through YieldBasis. This instantly generates significant trade fees for the pool, leading to rapid rebalancing and often a spike in APR.

2.4. Pool Interrelation: yb (Yield Bearing) and syb (Staking Vault)

The stability of your staked position depends on the price relationship between the two tokens:

• yb (Yield Bearing) Token: This token increases in price as fees accumulate, and its conversion rate relative to the syb token is always > 1 and growing.

• syb (Staking Vault) Token: This token is pegged to BTC and should ideally maintain a 1:1 ratio under normal conditions. The syb pool price relative to BTC can be monitored here: ybmonitor.com/metrics.

• Impact of Lag: If the yb pool's price experiences a temporary drawdown due to Rebalancing Lag, the syb pool's price will experience the same temporary drawdown until both pools return to equilibrium.

• Compensating Deviation: Periodically, the syb price may drop by fractions of a percent, even if the pool is in balance. This drop will be compensated by temporarily redirecting admin fees to this pool until the BTC peg is restored.

• V2 Stability: Losses in syb V2 are approximately 10-20 times smaller than they would have been in the old pools during similar market movements.

3. Compensation for Losses in Old Pools (V1)

User Question: I lost funds in the old pools (V1) due to errors in fee calculations. When and how will compensation be paid?

Answer: Compensation for the excessively charged administrative fees in version V1 was be paid retroactively. This applies to those who held funds in the staked pools.

• Condition: Distribution will begin after the migration reaches a minimum of 75% TVL across all pools and the necessary accounting scripts are written.

• Payment Method: Compensation will be sent directly to users' wallets; no additional action (claim) is required.

• Amount: The payment involves returning the difference between the charged and the correct fee (approximately 44 BTC will be returned).

4. Yield Difference: Why is cbBTC performing better than tBTC and WBTC?

User Question: Based on the charts, the cbBTC pool has recovered and shows a profit, while tBTC and WBTC are still in drawdown. Why is there this difference?

Answer: The cbBTC pool showed better results due to a fortunate confluence of market events.

• Reason: Large liquidations on third-party platforms (e.g., Compound and Morpho) were routed through the YieldBasis pool. These large swaps generated a significant volume of trading fees for the cbBTC pool.

• Result: The high fees allowed cbBTC to rebalance faster and move into profit.

• Status of Other Pools: The tBTC and WBTC pools have not yet received this volume of arbitrage and are awaiting rebalancing. tBTC devs already implemented staking changes to reduce redemption fees and time to redeem.

5. Fee Switch and veYB Rewards

User Question: I locked tokens in veYB. Where does the yield come from, and when will I start receiving real BTC fees?

Answer: The fee switch is activated, administrative fees are already accumulating in the contracts. See docs to get more information about veYB fee accumulation and distribution.

• Source of Income: veYB income is generated from administrative fees (admin fees) taken from a portion of the protocol's trading fees when ybBTC pools are over watermark rate.

• Payment Currency: Rewards will be paid in "ybBTC" pool tokens (a mix of cbBTC, WBTC, tBTC) and ybETH (ybWETH).

6. Increasing Limits (Cap Raise)

User Question: When will you raise the pool limits to 500M or 1B so everyone can join properly?

Answer: Limit increases are planned, but the team is maintaining a conservative approach.

• Conditions: The team monitors the crvUSD peg to avoid creating volatility. Each expansion must be preceded by a strengthening of the peg. There are several areas in which the team is working to achieve this goal.

• Process: Proposal Increase credit line to Yield Basis to 1B crvUSD was passed on forum. The increase will occur in stages (batches of 1-50M), not all at once. Security and real-world system testing are currently prioritized over rapid TVL growth.

• Hybrid Vaults: The next step for pools capacity increase -- implementing more "supply sinks" for crvUSD to stabilize it's peg. One of the solutions that was implemented is "The Hybrid Vault: Yield Basis scaling preserving $crvUSD stability"

7. Rebalance gaps in fundamental PPS

User Question: Why does the Fundamental Value PPS drop?

Answer: On the Price Per Share chart, there are periods where the fundamental value falls sharply and then continues rising. This comes from how Curve CryptoSwap and fxSwap pools — the core of YieldBasis — operate. The mechanism accumulates 50% of swap fees to rebalance the pool. When 20% of the collected fees is enough to shift the liquidity concentration center by one minimum step, the shift happens and that portion of the fees is spent. After that, fees start accumulating again, and the pool performs better because liquidity becomes concentrated closer to the current price.

1. Migration to New Pools: A transition to an improved pool version is planned, reducing the volatility of value calculations by a factor of 10. This addresses issues with oracles.

2. Compensation for LP Stakers: Losses for stakers (~54.34 BTC) will be compensated: 43.95 BTC for overpaid admin fees + 26 BTC in YB tokens, resulting in a total profit of ~15.4 BTC.

3. Migration Process: Launch will follow an announcement (48 hours prior) via a contract on yieldbasis.com. It is automated, but each individual needs to perform it, and quick migration is recommended.

4. Reason for Update: The use of an incorrect oracle in the old pool version led to overpayment of fees (48.76 BTC instead of 4.81 BTC). The new version resolves this.

5. Future Development: Plans include: switching veYB, scaling TVL to 500 million $, adding ETH pools, improving Curve pools underlying YB, and optimizing for dynamic fees and higher average yield.

Original @yieldbasis post

Migration awaits. If you’re a staked liquidity provider who has observed your BTC-denominated value decrease during recent volatility, we’ve identified the mechanism behind this and are deploying an improved implementation. Here’s what you need to know:

What’s happening: We’re migrating to an improved pool implementation that significantly reduces the variance of value calculations during volatility (approximately an order of magnitude more stable).

What does this mean for staked LPs affected by recent volatility?

You’ll receive a proportional distribution accounting for the variance between the legacy and updated calculations. It will be sent directly to your LP wallet no claim required.

Timeline: Migration begins following contract deployment. We’ll announce at least 48 hours prior to the start of migration.

Actions required by LPs: We recommend LPs migrate once the migration starts. A dedicated migration contract has been created. The UI will be available at yieldbasis.com once the migration is initiated.

Reasons for updating pools implementation

The previous implementation of LT (so-called “leveraged token” or ybBTC) contained a point for improvement related to its price oracle:

1. The protocol profit (and its further split between staked LPs / unstaked LPs / admin fee) is based on an internal profit estimate.

2. The profit estimate uses oracles, and the legacy implementation was exposed to volatility in profit estimation due to the specific oracle design.

3. The updated implementation significantly reduces the volatility impact on profit splits, ensuring correct and fair operation.

Practical impact on profits distribution

• In cases of extreme price volatility, veYB admin fees were exposed to fluctuations meaning they could have been temporarily over- or under-charged. The main case observed was an admin fee overcharge.

• Due to this overcharge, staked LP holders experienced a temporary reduction in LP position value, while unstaked ybBTC holders received excess fees.

More details explaining origin of losses for staked ybBTC

• The source of staked LP losses originates from the same factor causing bidirectional volatility in veYB/admin fee values.

• These losses occur only within internal computations, no value leaked outside the protocol.

• Since the issue originated in the internal value split, the other side of that split absorbed the variance: overcharged veYB fees and unstaked ybBTC holders received the excess value.

The computation for system profits and their using the updated oracle model is presented below:

Summary:

• Fundamental protocol profitability: ~1% for ybBTC during the last month (Relative Growth section). This represents pure LP income excluding admin fees and YB emissions.

• Admin fee charged: 48.76 BTC, correct fee: 4.81 BTC > 43.95 BTC difference to be returned.

• Non-staked LP PnL: 16.11 BTC

• Staked LP PnL: −54.34 BTC (includes temporary overcharge impact)

• System net profit: 9.2 BTC (correct amount for unstaked LPs + admin fee)

Thus, 43.95 BTC of the 54.34 BTC temporary loss will be covered from the overcharged admin fee.

Additionally, staked LPs have received 4,704,361 liquid YB tokens (~26 BTC) as part of YB emissions, fully covering the remaining difference and resulting in an estimated ~15.4 BTC total profit for staked LPs.

See full metrics here.

The new implementation

The new version of the LT contract is designed for seamless LP migration:

• LT and LiquidityGauge contracts will be redeployed and updated.

• Curve ybBTC-crvUSD cryptopools remain unchanged.

• After migration, each LP position will retain its relative place in the pool spread, as the oracle value remains consistent.

Old LT contracts will remain operational to allow voluntary migration at any time.

Migration procedure

A dedicated migration contract has been created. The UI will be available at yieldbasis.com once migration begins.

Migration will start following a public announcement after contract deployment and UI launch.

Overcharged admin fee distribution procedure

1. The final amount of overcharged admin fees and the corresponding distribution will be calculated once 75% of total TVL has migrated.

2. Current numbers are preliminary and subject to adjustment.

3. The overcharged amount will be distributed automatically to each staked LP wallet; no claim required.

4. As early product adopters, staked LPs will also be eligible for future protocol testing rewards.

Migration process

Handled automatically by the migration contract, no manual actions required.

Migration of unstaked ybBTC:

1. Withdraw funds from the old LT contract.

2. Reallocate crvUSD to the new LT contract.

3. Deposit funds into the new LT contract.

Migration of staked ybBTC:

1. Unstake ybBTC tokens.

2. Migrate unstaked tokens as described above.

3. Restake them in the new LT contract.

(Implemented in the migration contract: lines 8–112 for unstaked migration, lines 123–134 for staked migration.)

FAQ

• Should I unstake before migrating?

No, the entire migration process is automatically handled by the migration contract.

• Do I have to migrate immediately?

No. There is no time limit for migration. The legacy contracts and UI will work and you can migrate at any time.

However, the faster you migrate, the better. After 75% TVL will migrate, the overcharged admin fee will be recalculated and prepared for distributing to staked LPs.

• What if there’s high volatility during migration?

After migration, the new position has the same place in the pool spread as before migration.

The volatility losses occurring prior to the majority of TVL migrates will be taken into account.

• Will the improved implementation prevent all value fluctuations?

No, it is not possible to prevent all value fluctuations. However, the updated implementation will have an order of magnitude lower value fluctuations. Note that value fluctuations related to position in the spread still exist and could be comparable to twice the cryptopool fees (which are around 1%).

• How do I know the new implementation works better?

We rigorously simulated pools’ operation, and all calculations presented above also use the new implementation. With the new implementation value will have an order of magnitude less volatility and value split will work as it was initially proposed.

• What about the protocol’s broader roadmap?

The next steps after migration are following ones:

- veYB fee switch;

- TVL scaling: $500M is likely to be the next step;

- Pools with ETH (or staked ETH) and other Bitcoin wrappers;

- Improvements in Curve cryptopools which can increase protocol’s profitability.

Additional notes

The Curve pool withdrawal fee

The first step in the migration process for unstaked ybBTC is to withdraw funds from the yBTC contract. This results in a liquidity withdrawal from the underlying Curve pool with a fee associated with this process. Although this fee should not be significant given that the Curve pool is generally well-balanced, it is unavoidable because withdrawing funds from the yBTC contract also involves withdrawing them from the Curve pool. This fee is zero when Curve pools are balanced.

This publication is intended solely for informational purposes and does not constitute investment advice, solicitation, or financial promotion. Past performance or internal estimates are not guarantees of future results. All on-chain operations are transparent and governed by smart-contract logic verified on Ethereum mainnet.