With this launch, Curve Finance has also launched Yield Basis. This novel technology, called the Unified Liquidity Model, intends to prevent all impermanent loss for Bitcoin and Ether liquidity providers. This move is a significant victory for the decentralized finance (DeFi) ecosystem. First, it gets right at a major concern for anyone looking to provide liquidity to automated market makers (AMMs).
Impermanent loss occurs when the prices of the tokens in a liquidity pool diverge. This divergence means that the value of your assets decreases, relative to simply holding the assets. Yield Basis tackles this head on. It dramatically reduces impermanent loss, allowing liquidity providers to retain the maximum value of their assets regardless of the price changes that may occur.
The unique protocol keeps its 200% overcollateralized position through the adjustment of borrowed crvUSD stablecoins. This mechanism completely removes the square root price dependency that usually causes impermanent loss in AMMs. Yield Basis eliminates this reliance. Therefore, liquidity providers’ assets maintain their value regardless of the market volatility.
By offering Yield Basis, Curve Finance hopes to reduce the risks and uncertainties when liquidity providers interact with DeFi projects. Users can enter into DeFi spaces knowing that the protocol’s design prevents impermanent loss from eating away their invested capital. This timely development can attract even more users to the platform. Thus, it will increase liquidity and fortify Curve Finance’s standing within the DeFi ecosystem.
Yield Basis represents a fundamental shift in DeFi. It increases the platform’s accessibility and appeal to a more diverse audience. Curve Finance is currently working on minimizing the impact associated with impermanent loss. It helps achieve a more sustainable and user-friendly environment for decentralized trading and liquidity provision.
