Impermanent Loss Transfer Technique, is Curve's new work Yield Basis a financial innovation or a Ponzi trap?

Curve's new project, Yield Basis, proposes solutions to eliminate impermanent losses, amplifying gains through leverage, but also sparking debate about financial innovation or just another Ponzi trap. This article is derived from an article written by Saji Crooked Neck Mountain, and is compiled, compiled and written by PANews. (Synopsis: 7 ways Bitcoin earns interest, plus new exploration by Curve founders) (Background added: Bancor Research: 49% of Uniswap V3 liquidity providers are loss-making!) Due to impermanent losses ) After the collapse of Luna-UST, stablecoins completely bid farewell to the era of computing stability, and the CDP mechanism (DAI, GHO, and crvUSD) once became the hope of the whole village, but finally rushed out of the siege under the siege of USDT/USDC is Ethena and the income anchoring paradigm it represents, which avoids the problem of capital inefficiency caused by over-collateralization. It can also open up the DeFi market with native revenue features. On the other hand, the Curve system, after relying on stablecoin transactions to open the DEX market, gradually entered the lending market Llama Lend and the stablecoin market crvUSD, but under the light of the Aave system, the issuance of crvUSD has hovered around $100 million for a long time, which can basically only be used as a background board. However, after the flywheel of Ethena/Aave/Pendle was launched, Curve's new project Yield Basis also wanted to get a piece of the stablecoin market, also starting from a revolving leveraged loan, but this time it was a transaction, hoping to use the transaction to erase the persistent disease of AMM DEX - impermanent loss (IL, Impermanent Loss). Unilateralism eliminates impermanent loss Curve is the latest masterpiece, now your BTC is mine, take your YB guard. Yield Basis represents the Renaissance, in a project, you can see liquidity mining, pre-mining, Curve War, staking, veToken, LP Token and revolving loans, which can be said to be the culmination of DeFi development. Curve founder Michael Egorov was an early beneficiary of the development of DEX, improving on Uniswap's classic AMM algorithm of x*y=k, and successively introducing stableswap and cryptoswap algorithms to support more "stablecoin transactions" and more efficient general-purpose algorithms. The large-scale trading of stablecoins has laid the foundation for Curve's on-chain "lending" market for early stablecoins such as USDC/USDT/DAI, and Curve has also become the most important stablecoin on-chain infrastructure in the pre-Pendle era, and even the collapse of UST is directly due to the moment of Curve's liquidity replacement. In tokenomics, the veToken model and the subsequent "bribery" mechanism Convex made veCRV a truly useful asset, but after a four-year lock-up period, most $CRV holders were suffering and inhumane. After the rise of Pendle and Ethena, the market position of the Curve system is precarious, the core is that for USDe, hedging stems from CEX contracts, diversion uses sUSDe to capture gains, and the importance of stablecoin trading itself is no longer important. The counterattack of the Curve series first came from Resupply, launched in 2024 in conjunction with the two ancient giants of Convex and Yearn Fi, and then without unexpected thunderstorms, the Curve series failed for the first time. Resupply has an accident, although it is not an official project of Curve, but broken bones and tendons, if Curve does not fight back, it will be difficult to buy a ticket to the future in the new era of stablecoins. Yield Basis is not aimed at stablecoins, nor the lending market, but the problem of impermanent losses in AMM DEX, but first of all: the real purpose of Yield Basis has never been to eliminate impermanent losses, but to promote the issuance of crvUSD. But still starting from the mechanism of impermanent loss, LPs ( liquidity providers ) replace traditional market makers, and provide "bilateral liquidity" for AMM DEX trading pairs under the stimulation of fee sharing, such as in BTC/crvUSD trading pairs, LPs need to provide 1 BTC and 1 crvUSD ( assuming 1BTC = 1USD), the total value of the LP is $2. Correspondingly, the price p of 1 BTC can also be expressed in y/x, we agree on p=y/x, at this time, if the price of BTC changes, such as an increase of 100% to $2, arbitrage will occur: Pool A: The arbitrageur will use $1 to buy 1 BTC, at which point the LP needs to sell BTC to get $2 Pool B: Sell in pool B with a value of $2, and the arbitrageur makes a net profit of 2-1=$1 The arbitrageur's profit is essentially the loss of the A pool LP, If you want to quantify this loss, you can first calculate the value of the LP after the arbitrage occurs LP (p) = 2√p (x, y is also expressed by p for ), but if the LP simply holds 1 BTC and 1 crvUSD, it is considered to have no loss and can be expressed as LP~hold~ (p) = p +1。 According to the inequality, in the case of p>0 and not 1, 2√p < p + 1 can always be obtained, and the arbitrageur's income essentially comes from the loss of LPs, so under the stimulation of economic interests, LPs tend to withdraw liquidity and hold cryptocurrencies, and the AMM protocol must retain LPs through higher fee sharing and token incentives, which is the fundamental reason why CEX can maintain its advantage over DEX in the spot field. Image caption: Impermanent loss Image source: @yieldbasis From the perspective of the entire chain economic system, impermanence loss can be regarded as an "expectation", LP chooses to provide liquidity, can no longer claim the income of holding, so in essence, impermanent loss is more of an "accounting" type of bookkeeping loss, rather than being regarded as a real economic loss, compared to holding BTC, LP can also get a fee. Yield Basis does not think so, they do not start from improving liquidity, increasing the proportion of fees to eliminate the expected loss of LP, but from the "market making efficiency", as mentioned earlier, compared to holding p+1, LP's 2√p can never win, but from the perspective of the output ratio of $1 input, the initial investment of $2, the current price of $2√p, the "yield" of each dollar is 2√p/2 = √p, remember p is the price of 1 BTC, so if you simply hold, then p It's the rate of return on your assets. Assuming an initial investment of $2, then after a 100% increase, LP earnings change as follows: • Absolute value added: $2 = 1 BTC (1 USD)...