Curve Finance founder Michael Egorov proposed allocating $60 million in crvUSD stablecoin to the new Yield Basis protocol, aiming to support Bitcoin trading pools and enhance veCRV holder returns.

Executive Summary

Curve Finance founder Michael Egorov proposed allocating $60 million in crvUSD stablecoin to his new Yield Basis protocol, designed to support three Bitcoin trading pools and distribute yield to veCRV holders. The proposal is currently undergoing a governance vote until September 24. This initiative aims to establish a new Automated Market Maker (AMM) focused on mitigating impermanent loss for tokenized Bitcoin liquidity providers, thereby enhancing the overall value proposition for the Curve ecosystem and its governance participants.

The Proposal in Detail

Yield Basis seeks a $60 million credit line in crvUSD from Curve DAO to fund the establishment of three initial liquidity pools for Wrapped Bitcoin (WBTC), Coinbase Bitcoin (cbBTC), and tokenized Bitcoin (tBTC) on the Ethereum mainnet. Each of these pools is designed with a deposit cap of $10 million in Bitcoin. The mechanism involves retaining the borrowed crvUSD within proprietary AMM pools as liquidity, paired with Bitcoin, rather than selling it externally, a strategy intended to mitigate peg-related risks for the stablecoin.

The proposal outlines several revenue models designed to accrue value for the Curve ecosystem. A significant portion of the generated yield, specifically between 35% and 65%, is slated for distribution to veCRV holders. Additionally, 50% of the trading fees from crvUSD pools are already distributed to veCRV holders, and 80% of accrued interest from crvUSD markets also benefits veCRV holders. Furthermore, Yield Basis plans to allocate 20% of its YB token inflation permanently to Curve DAO as compensation for integrating Curve's core technology, with 25% of YB tokens that Yield Basis liquidity providers receive reserved for the Curve ecosystem. The initial funding for Yield Basis included a $5 million token round at a $50 million fully diluted valuation, with 10% of the total YB token supply (100 million tokens out of 1 billion) sold to investors.

Business Strategy and Market Positioning

Yield Basis is positioned as a Curve-native AMM leveraging constant leverage to eliminate impermanent loss in Bitcoin pools. This design allows holders of tokenized Bitcoin to earn yield through market making, addressing a key risk in decentralized finance (DeFi). The allocation of YB tokens includes 30% for community incentives, 25% for the team, 15% for development reserves, 10% for Curve technology licensing, and 10% for collaborations, indicating a strategy focused on community engagement and ecosystem integration.

The proposed pre-minting of crvUSD has sparked debate within the Curve governance forum. While proponents compare the mechanism to Curve's existing PegKeepers, skeptics have expressed concerns about the "minting out-of-thin-air, unbacked, 60M crvUSD." These concerns raise questions regarding Curve's DAO authority and risk management, particularly in light of past security incidents such as the June 2025 Resupply exploit. The current market capitalization of crvUSD stands at approximately $127 million. Commenters have called for enhanced risk mitigation measures, including capped, on-demand minting with explicit per-pool limits and a DAO-controlled kill-switch, alongside proposals for insurance vaults or explicit risk fees to the DAO.

Broader Market Implications

The Yield Basis proposal carries significant implications for the scaling of crvUSD and the broader Web3 ecosystem. Proponents argue that by pairing crvUSD with Bitcoin within Curve pools, the mechanism creates demand-side absorption for the stablecoin, addressing a critical bottleneck for its growth. If successful, this could strengthen crvUSD's position as a leading decentralized stablecoin, currently ranking as the third-largest among its peers.

From a DeFi innovation perspective, Yield Basis could establish a novel approach to mitigating impermanent loss, a persistent challenge in AMM designs. Such a development could attract more institutional capital into tokenized Bitcoin strategies, thereby expanding the utility and adoption of DeFi protocols. The initiative also aims to enhance the Curve Finance ecosystem by boosting Bitcoin liquidity and generating new fee streams, further solidifying Curve's role as a foundational infrastructure in DeFi.

However, the ongoing governance debate underscores the inherent challenges in DeFi concerning risk exposure and the balance between innovation and protocol security. The resolution of this proposal may set precedents for future DAO governance models, particularly regarding the implementation of pre-minting mechanisms and the integration of new protocols within established ecosystems.