Impermanent loss has hindered crypto holders from becoming liquidity providers on DeFi platforms. Yield Basis, developed by Curve Finance, addresses this issue effectively, particularly for tokenized Bitcoin and Ether liquidity providers. According to Curve founder Dr. Michael Egorov, impermanent loss occurs when the price of assets in a liquidity pool declines, resulting in reduced funds compared to simply holding the tokens. Egorov aims to eliminate this issue by adjusting the proportion related to Bitcoin’s price, stating that using compounding leverage can keep positions overcollateralized by 200%. This mechanism neutralizes impermanent loss by maintaining the position price at double the collateral, thus removing the square root dependency that causes such losses. Users can choose to receive yields in either tokenized Bitcoin or the Yield Basis token, aligning inflation rates with market conditions. During favorable conditions, users may prefer staking the Yield Basis token for appreciation, while in less favorable conditions, they might opt for Bitcoin to balance out token inflation. Yield Basis presents a market-oriented solution for mitigating the concerns surrounding impermanent loss.

Source 🔗