Impermanent loss has long deterred crypto holders from becoming liquidity providers on decentralized finance platforms. Yield Basis, a protocol developed by Curve Finance, aims to mitigate this issue for liquidity providers dealing with tokenized Bitcoin and Ether. According to Curve founder Dr. Michael Egorov, impermanent loss occurs when the price of assets in a liquidity pool deviates, leading to potential losses compared to simply holding the assets. Egorov highlights that this problem results from a mathematical dependency on the square root of Bitcoin's price, proposing a solution that involves using compounding leverage to maintain an overcollateralized position. Yield Basis achieves this by keeping the collateralization ratio at 200%, effectively neutralizing the impermanent loss risk. Users can choose to receive yield in either tokenized Bitcoin or the Yield Basis token, depending on market conditions. This approach not only addresses impermanent loss but also introduces a market-driven method for setting inflation rates and managing token emissions.

Source đź”—