Michael Egorov: Yield Basis - Bringing Real Yield to Bitcoin

**Yan Liberman** (0:01)
You're now plugged in to The Delphi Podcast.

**José Macedo** (0:08)
Hi, everyone, and welcome to another episode of The Delphi Podcast. I'll be guest hosting this today alongside Yan Liberman, who is the managing partner at Delphi Ventures. And I'm José, head of Delphi Labs. So today with us, we have Michael Egorov, one of the DeFi OGs, co-founder of Curve, one of the original DeFi Summer Protocols that has invented a lot of the primitives that we use today in DeFi. And he's here today to discuss his new invention, which is YieldBasis. YieldBasis has the ambitious vision of eliminating impermanent loss on RPing, which would basically allow you to have a natural yield on Bitcoin at scale. So effectively, the holy grail of like a yield bearing Bitcoin. So really excited to dig in to how this works today, how he's taking it to market and how big this could be. And before we start, full disclosure, Delphi Ventures are investors in YieldBasis. Maybe Michael, to kick us off, do you want to sort of simply summarize what YieldBasis is? And then we'll dig in to the mechanism and more.

**Michael Egorov** (1:15)
Yeah, as you explained very simply, YieldBasis is a product on top of Curve Crypto pools and it essentially removes impermanent loss. So you can LP just crypto, single-sided and turn it into essentially a yield-bearing crypto.

**José Macedo** (1:38)
Very cool. Yan, you want to go next on a follow-up of how it works?

**Yan Liberman** (1:42)
Yeah, yeah. So we'd love to maybe dive into how it works and I think part of that goes into addressing what the problem situation is right now and how you go about solving it.

**Michael Egorov** (1:56)
Yes, absolutely. So I think, yes, this problem is not necessarily well known to those who are new to DeFi and I would explain it this way. Imagine that you want to earn some money on crypto exchanges, right? And let's say on exchanges between WBTC and USDT, right? So you brought your WBTC and USDT and put into some protocol, whatever that is, be it Curve, be it Uniswap, it doesn't matter. And you hope that these funds will just passively sit there and make you some fees. And indeed they do, but it appears that if Bitcoin goes up, let's say Bitcoin goes up by a factor of four, right? For example, everything mooned and yeah, it's just like it actually happened. If Bitcoin went up by a factor of four, then your deposits in the simplest AMM, let's say Uniswap too, but I guess in Curve, that would be the same kind of behavior in this regard. It would have two times the deposits plus the earned fees, right? And if Bitcoin went down by a factor of four, then you would have two times less, the deposits plus the earned fees. So deposits, they grow and fall proportionally to square root of Bitcoin price over there. Now think about it. What happens if you don't put your funds in AMM? So let's say you held your Bitcoins in your cold wallet, and you held your USD in bank account, and you started with, let's say, with the same 50-50 split, but these funds are doing nothing. If Bitcoin goes up by factor of 4, then the value of your holdings, if they don't do anything, would go up by factor essentially 2.5. And if Bitcoin goes down by factor of 4, in this case, your funds which are doing nothing would shrink to 62.5% of the original value. So whether Bitcoin goes up or Bitcoin goes down, it appears that if your crypto and US dollars are doing nothing, you actually have more money than if you put them in AMM. So it sounds like trying to earn some fees on market making actually leaves you with less money than if you don't do that. Which is strange, but that's what people call impermanent loss, and it is some inherent property of all the AMMs out there.
Of course, you can try to get rid of this impermanent loss in certain ways. You can try to hedge it by essentially selling this risk to someone else, but that is usually hard to do in a scalable manner. So this whole situation really limited how much TVL is making crypto liquidity. When I made Curve, I made it actually with, as like an AMM, to primarily swap between assets of the same denomination, like US dollars to US dollars, ethers to staked ethers and so on. And because they are the same denomination, they don't really exhibit impermanent loss because they don't really diverge in price. And after all, if you have more US dollars than US dollars, you still have US dollars. So it's not really a problem. But with cryptos, with volatile pairs, it's much more tricky because this loss of, well, impermanent loss which you get in the pool is actually significant because crypto prices change significantly and they don't like to come back. And if crypto prices came back to where you started, then of course you would have a profit, it's only the fees you earn because actually the prices would, the kind of base price of your AMM would go back to back to where it was when you started. But crypto prices for some reason don't really like to go back in the long term, especially for Bitcoin. So something is really needed to address this problem. And yeah, this is why I came up with YieldBasis.