Yield Basis: Disrupting Defi & Bitcoin Yield - Michael Egorov. Ep 623

Transcript

Welcome to Epson, the show which talks about the technologies, projects, and people driving decentralization and the blockchain revolution. I'm Brian Crane, and today I'm speaking with Michael Agorov. I thought, what if we have voting power not equal to number of tokens? But what if we lock the tokens and the voting power will be proportional to number of tokens and time left before unlock. So if you lock tokens for like the maximum of four years, you have maximum voting power. But if you lock tokens for one year, your voting power is four times less.

What do you think would be the kind of yield that people would be able to earn like 20%. It can go down if liquidity in yield bases starts suppressing Bitcoin volatility globally. And question is where is this limit? something around 50 billion TVL I guess right so welcome to epenter the show which talks about the technologies projects and people driving decentralization and the blockchain revolution I'm Brian Crane and today I'm speaking with Michael Agorov who is the co-founder and CEO of curve finance which was one of the most influential original most successful uh DeFi

protocols and more recently actually very very recently just a few weeks ago has launched a new protocol called yield basis which is also very interesting and is tackling one of the most tricky problems around uh AMMs uh or automated market maker uh impermanent loss. So I'm really excited to talk with Michael about this today. So just before we get into that would like to share a few words from our sponsors this week. This episode is brought to you by Nosis, building the open internet one block at a time. Nosis was founded in 2015 and it's grown from one of Ethereum's earliest projects into a powerful ecosystem for open userowned finance.

Nosis is also the team behind products that have become core to my business and that of so many others like Safe and Cow Swap. At the center is Nosis Chain. It's a low fee layer 1 with zero downtime in 7 years and secured by over 300,000 validators. It's the foundation for real world financial applications like Nosis Pay and circles. All this is governed by Nosis DAO, a communityrun organization where anyone with a GNO token can vote on updates, fund new projects, and even run a validator from home. So, if you're building in web 3 or you're just curious about what financial freedom can look like, start exploring at Nosis.io.

>> Thanks so much for coming on today, Michael. It's really great to have you back on. I saw we had you on I think four years ago over four and a half years ago already to talk about curve. So it's been quite a while. That's right. >> Yeah. Yeah. I guess uh it's the time flies. So you said I'm a co-founder of curve but there is no other founder. >> That's right. Yeah. Yeah. The only founder right? >> So I guess um Yeah. I guess co-ounded with uh with my uh with my laptop.

>> Yeah. With your laptop. Yeah. Uh I should also mention a disclaimer that uh through my company course one we are an investor in yield basis as well. Um right so let's uh maybe we can I mean I think mainly we want to speak about yield basis um but for those who are not familiar with curve maybe just a few m can you give like a very quick background on you know what curve is and what are your biggest learnings from curve. No, absolutely. So, um, curve is, um, I would say probably best known as,

uh, the the venue for, um, m exchanging and providing stable coin liquidity to swap between stable coins and between I would say between LSTs as well. I started it back in 2020 because well with one reasons one of the reasons being because I was a big user of maker DA borrowing die against ETH because I didn't want to sell precious ethers and uh uh but I needed some funds so I borrowed against ETH um and you know you could borrow sell die on I don't know

somewhere and withdraw USDC as USD in Coinbase or something. But I found that actually exchange between stable coins was very very suboptimal everywhere on centralized exchanges on dexes like um yeah um and at the at the same time I was thinking about making liquidity for what we now call LSTs uh liquid staking derivatives and I thought well actually the same algorithm is applicable to stable coins so I launched curve with uh making with the ability to make stable coin

liquidity and already at 1 million TVL it outperformed everything in existence in this area and uh yeah it just grew since then and of course it since then expanded to um well Bitcoin rappers, staked ethers, uh even volatile pairs and actually what powers yield basis This is some uh modifications of uh crypto pools uh for making liquidity between uh volat in involatile pairs.

Oh, and after that, uh, Curve actually created its own stable coin, Curve USD, as well as lending protocol with some, uh, very interesting mechanisms like, uh, unliquidations and, uh, and also of course, curve is governed by curve DAO for which I invented VE tokconomics and, uh, I iterated further on that in yield basis because I think it was uh, uh, well um, it would It was nice to somewhat update what um what token uh economic designs do.

>> Yeah, absolutely. I think there's a lot of stuff there to go into. Um just uh right to zoom out a little bit. Right. So I guess the the thing in something like a unis swap or right to traditional AMM right is you basically let's say you have like a USDC USDT market and then you know people provide liquidity on both sides and then as you put in let's say USDC then the price of USDC goes up right so it becomes more and more like it No, no, down. Yeah. Yeah. Yeah. Right.

You're putting it down, right? You you you're putting in USC, taking on USDT and then price keeps going down and then very quickly because because the the the sort of protocol thinks that means it's losing value, right? Because it doesn't have it's sort of an internal price predictor, right? Based on the trading volume of the exchange. So then for especially for stable pairs, right, it doesn't make any sense, right? because the you know their basic >> well there is pricing uh so price is not set to one in curve actually it never was >> it but curve has what we now call concentrated liquidity the very first

concentrated liquidity was curve >> uh but it's not that concentrated liquidity where you uh handcraft your liquidity distribution it's um a concentrated liquidity where it's distributed according to some special bonding curve which concentrates liquidity around the price 1.0. So because like you know that uh maybe maybe having liquidity at price 0.5 is kind of useless in stable point world right so you probably want everything be to be around 1.0 zero and apparently the bonding curve which is uh in curve uh that's hence the name is uh actually uh

very efficient. So I I don't think uh I don't think anything in existence provides significantly bigger efficiency than that. >> Yeah. Uh for stable coins at least. >> Yeah. Maybe let's talk about the vto tokconomics because I think vtokconomics uh is something you know that you've seen come up in other places. I think a lot of people ended up copying it but can you explain >> right >> what was what was the problem you're trying to solve and like how how do vtokconomics work? So the actual the original idea was aligning uh the governance with the

long-term success of the protocol. And the problem is this. Imagine that someone controls a protocol with tokens or shares or whatever. So the more tokens or shares they have, the more votive power they have. What if they for example um well let me just bring you one one example which I think what have happened maybe maybe it's not that but maybe it is so it's still good example you remember how uh back in the days there were several crashes with Boing Max aircrafts right and uh well the the re reason for these crashes was essentially

low quality of uh well low quality of production because the company was trying to save money on everything. But why did they try to save money on everything? Well, it appears that they uh switched a bunch of revenues to share buybacks and didn't spend much money on um on improving quality. So um well shares went up but they didn't have much money for the for the company to operate. So they uh had to fire some good engineers and of course quality of aircrafts uh deteriorated

and um well it led to few uh catastrophes and well guess what shares started dropping but apparently a bunch of shareholders already sold their shares by that time and who knows maybe they shorted but then US government uh uh salvaged the company and they bought the dip and uh well I mean shareholders benefited but it was not not great for the company at all. Maybe it's not what happened, but that's how it looked. It seemed to me and I thought, well, what's the fundamental reason for this to happen? Fundamental reason is that shareholders are not aligned with the

long-term success of the company. So, what if we do this? What if we align um token holders with the long-term success of the project? How do we do it? >> Okay. So and and how did you use tokconomics then to align these uh incentives in the protocol? >> Right. So I thought what if we have voting power not equal to uh number of tokens but what if we lock the tokens and the voting power will be proportional to number of tokens and time left before unlock. So if you lock tokens for like the maximum of four

years, you have maximum voting power. But if you lock uh uh tokens for one year, your voting power is four times less. Or if you um lock tokens for I don't know for one week, then your voting power is um I think 0.5% of uh someone's voting power if they locked for four years. So that's um essentially the idea. So someone who has longerterm alignment hopefully maximum has the biggest say in the future of the protocol. And that indeed worked. Indeed, this produced um

some long-term alignment not necessarily of physical people but also long-term alignment of protocols built on top of curve like convex or stake da or wire and they are all passionate about moving uh curve forwards. So this in a sense worked. But that was not the only thing. Um, as you can imagine, >> right? Cuz cuz I guess the the way I'd imagine people would sort of like uh sort of work around it is if you if you can just then like you put that into some pool and that stakes for the maximum duration and then they issue

like a liquid token, right? That you can like immediately. >> True. That is that is of course true. But then you of course give your voting power to that protocol, right? So that protocol decides how to use this voting power. That's one thing. Another thing, if people who do that uh decide to exit, then this um derivative u wrapper of uh of the lock token will dep. So you turn um essentially um well you turn you turn this uh

waiting for unlock into the market discount. >> Yeah. Yeah. And then what was the impact or or like what do you think were some of the positive effect of creating this po tokconomic? >> Right. one positive effect which I didn't necessarily think of um well uh it appears that locking the tokens removes them from circulation actually way faster than buyback and burn would do around three times faster. So if curve uh basically collected revenues which the protocol has and bought CRV tokens

from the market and burned uh it would have removed three times less tokens from uh circulation than than locking removed. So it appears that um V tokconomics actually practically uh is more efficient for for decreasing their circulating supply which is what well I had no idea that this will be the case when I started this. So it's a very interesting economic consequence. So um I mean I don't know and if you are now as you kind of started working on a

new protocol are there particular things you feel like you've learned or your biggest lessons from building curve where you felt like this is something I want to do differently. >> Yes absolutely. So there there were some details about how ve tokconomics works which I wanted to change. Uh well for once um Vitoconomics actually wanted to resist uh this wrapping and this wrapping happened anyway but it created an obstacle of locking for multis essential. So I removed this uh obstacle in vib. Um so even multis can can lock vibb that's fine. Uh another thing um in the e

tokconomics um one of the function of ve tokens is boosting your uh token emissions. So let's say if you uh put money in the pools take it to earn tokens then you can earn more survey tokens if you have vec which u seems to be a nice function of uh ve tokens. That's right. But it encourages creation of uh natural monopolies in uh V who hold VCV and that is not necessarily bad because they did a good function but

nevertheless it's uh a little bit less decentralization. Well, they are decentralized within themselves but uh it it felt like still felts like something wrong about it. So I and also increasing boosting uh token production by having VE tokens is uh a little bit technically uh difficult. So I decided to uh remove that uh function uh from V uh from the EYB. So it's uh VYB is not doing that thing.

Another thing which is not necessarily directly VE tokconomics which I wanted to try is um splitting um splitting revenues between staked and unstaked. So in curve there is no uh reason to not stake uh your liquidity. So if you provide liquidity on curve you earn um of course fees of the pool and if you stake you also earn CRV tokens and there is no reason to not earn CRV tokens because like well you if you don't do that they just earn less right so why earn less and um people who earn survey tokens

they u sometimes they don't need survey tokens so they kind of sell them and um yeah so it's uh uh and it's a complication for integrations so I thought why not do it differently why not make it so that there are two kinds of people one people want to earn natural yield right so natural yield protocol is earning so they have autoco compounding value uh just growing in their wallet and those who don't want want natural yield those who just want to hold the stable value of what they put in and earn protocol tokens, YB tokens. Um, and that's what I did in

yield basis. So you u essentially split between two kinds of uh liquidity providers and I think that is good for integrations because uh for integrations it's actually much easier to integrate something which doesn't uh doesn't earn tokens something which just automatically compounds value and it's uh allows to split between two kinds of people who want to who want to collect uh valuable governance tokens and not sell it hopefully. Okay. And who want to just uh earn real yield and they would have sold the governance tokens but they just can earn real yield in the first place instead. So that's uh their idea and I don't

>> that's kind of similar to what Pendle did. No >> uh I don't know actually I think the encouragement for me was not Pendle. It was how you split yield in uh in convex. you can uh stake CVX CRV and can choose whether you earn CRV tokens or you earn uh stable coins. >> Yeah. No, absolutely. I think that makes perfect sense, right? And it it seems like a sort of win-win from both sides, right? Because on the one hand, somebody wants to use yield graces, they want to earn yield, then they mainly just want a higher yield, right? And and right, if they can get higher yield, that's

fantastic, right? then other people really want to bet on the the token and then if if they if you can sort of segregate that I think it is it is very elegant >> right but this design leads to even more consequences which you don't think of at the start um I think you imagine two limit cases one is when everyone wants to um wants to earn governance tokens right well and no one wants to earn real yield. Pretty easy to imagine what happens then. Of course, stock token inflation is uh probably at it max at its maximum. But nobody wants real yield. If nobody wants real yield, where

does real yield go? And you probably can guess it. It would go to all to admin fees in this case. So admin fees would be very big if everyone wants to earn governance tokens. Or imagine the opposite. Imagine that everyone is um I don't know a Bitcoin maxi who don't really want to deal with those uh coins. They want only Bitcoin. What happens? Well, they own they all want to earn real fees, real yield. So, they all don't stake. They have value of Bitcoin growing. That's fine. But nobody wants to earn your governance tokens. Nobody staked. So is there any reason to have token inflation

if that happened? Well, apparently not. So inflation of YB token is dynamic and depends on how many people staked and if nobody stakes then inflation goes to zero. So that is uh all dynamic and all driven by free market. >> Cool. So let's let's we have actually haven't yet talked about uh what yield basis is. So maybe explain what is the vision or how would you describe youth basis? >> Right. So I would describe it as um essentially how would you say a vault right or a set of vaults which are built on top of curve AMN which uh eliminate

impermanent loss. So you essentially provide liquidity and it is uh for the user it's looking like um essentially a yieldbearing bitcoin if it's uh for bitcoin of course or for raft bitcoins >> right cuz impermanent loss is a weird thing right that I think people who have been liquidity providers in defi uh you know often have sort of you know painfully experienced and and other people they they have no idea what it is. But basically, right, it's it's in an AMM, right? So, let's say you have a pair in an AMM, something like ETH, Bitcoin,

and then if you put let's say you put in $100 worth of ETH when you put in $100 worth of Bitcoin. Um, now let's say the Bitcoin went up by 50%. You know, if I just add $100 worth of Eve and and Eve stayed the same, then normally I would have $250. But if I put have both of those in the AMM actually sort of as the Bitcoin goes up, I'm selling some Bitcoin and we're buying more ETH and so I end up with less than $250. I end up with I don't know 240, 230, some number like that. I don't know exactly. Um actually actually this is uh uh easy to explain quantitatively with um um with unis swap 2 amm although it works the same with

curve uh crypto swap amm right. So imagine you have um the simplest amm you can imagine uh same as unis swap one actually. So you put Bitcoin, 50K worth of Bitcoin and 50K worth of uh US dollar in this AMM, right? So if Bitcoin goes up, it sells a little bit of Bitcoin. If Bitcoin goes down, it buys a little bit of Bitcoin. Um or well to to the traders. Um so how does the price of your liquidity behave?

um apparently it is proportional to square root of um a bitcoin price plus the fees it it earns on the way. So imagine that bitcoin went up by factor of four right then your value in your amm goes up by square root of four by factor of two. So your 100k turns into 200k. Well, sounds good. But what happened if you did not put funds in the AMM?

Uh, well, 50K worth of Bitcoin goes up by a factor of four turns into 200K, but you have also this 50K of USD. So, you'd have had 250K and in AMM you have 200K, which is less. So, sounds like you kind of missed out when you were in the AMM. And weirdly, if Bitcoin goes down, it's kind of the same thing. In AMM, you have less than if you have your funds sitting on a shelf. Uh, of course, it's not exactly like that because AMMs also earn fees and you get a little bit more in the AMM, but fees usually don't cover this gap because Bitcoin tends to go up faster than AMM earns fees um somewhat.

So, this was a problem for people all the time. Yeah, absolutely. Uh, and I've definitely experienced that in the past, right, where I've been in like liquidity providers and with like liquidity, >> but I have anecdotal I have anecdotal evidence from people who LPD between CRV and ETH and they've been very happy. They lped that in unis swap 2 for several years and they've been up both in terms of CRV and in terms of ETH. But it is one of the rare examples where fee were actually bigger than the IL.

>> Yeah, exactly. But so the challenge like let's say if you take the Bitcoin example and you guys focus on Bitcoin at least initially then uh you know people tend to want to hold on to their Bitcoin. So they're kind of reluctant to put it into any kind of AMM because they're like, well, you know, chant, there's a good chance that they'll end up with less Bitcoin in the end uh because of impermanent loss and like I don't want that, >> right? >> So, so how does yield basis get rid of impermanent loss?

>> Yeah. Yeah. Well, um as I mentioned the price of your um of your liquidity but like base price is proportional to square root of Bitcoin price. So it feels like it's actually not a real loss. It's kind of almost a mathematical loss. So you you you really want to get rid of that square root somehow. And apparently it is possible. Um, and you just need to construct some position which inverts this square root function. And well, what position could that be? Apparently, this position is um leverage, but it's not a typical

leverage. It's compounding leverage. So, leverage where you keep loan to value ratio constant all the time. to have leverage of uh factor of two you need uh 50% LTV and if you maintain that then uh your leverage makes your position being square of the price of your collateral and if your collateral is your um AMM position then you have square of the square root so it cancels out and it will be proportional to Bitcoin price plus the fees it makes minus any uh any sort of uh expenses or losses you have uh on the way but this would be not

impermanent loss. Um so it's uh so you can get rid of impermanent loss this way but then you have to um have to check are you actually net positive or no right and it appears that you are actually uh net positive if you use the right AMM under the hood right so basically right so we we said before I'm trying to so let's say you have like the 50k USD and you have the 50k Bitcoin.

That's kind of like the traditional way, right? But now we want to somehow get rid of the impermanent loss. So instead of a person putting in USD and Bitcoin into let's say the curve AMM directly, they put just Bitcoin >> Yep. >> into uh into the yield basis. >> That's right. and and and so let's say they put in uh 50k worth of bitcoin >> and actually I think uh better to explain it like 100k worth of bitcoin >> okay 100k worth of >> and the protocol borrows 100k worth of curve USD pairs with that

bitcoin and uses this 200k position to collateralize your uh 100k loan. So the net um value of this position is 100k. >> Yeah. So the exactly so you're putting in 100k worth of bitcoin. The protocol borrows 100k of stables and then it has this LP token and the LP token basically represents the 100k worth of BTC a and 100k worth of stable. That's the collateral input of course. Yeah. Yeah.

>> And this debt kind of cancels out on average the curve USD part. The tricky part is that this AMM is actually is having concentrated liquidity. So it's not XYK. It's XYK only on average. But in uh different moments of time it can deviate from ideal balance. So it can be not 50/50 but you know 45 55 or I don't know 6040 or something and uh so it fluctuates like that and uh the the loan is actually the loan is 50%.

uh and actually that um well on average AMM is also doing 50% but it's fluctuating around this um ideal value and that is what is uh making it work because that's like inevitable property of concentrated liquidity that you have uh you have it um going out of balance a little bit. >> Yeah. Yeah. So I'm curious um under which scenarios a and what's interesting right is you guys launched yield basis just before we had this you know massive liquidation event uh you know I guess it was a week

ago was it or two weeks ago? >> It was uh October 10. >> Yeah two weeks ago right? um which uh you know caused lots of chaos in some in some uh centralized exchanges, some protocol deep protocols. How did uh yield bases handle the the volatility and liquidations that happened there, >> right? So I actually studied this uh quite a bit. So uh first thing I checked there are actually two AMMs in yield basis. One is curve AMM and another is relev which keeps the leverage constant. And there is a spread between these two

AMMs. Uh when things are very calm, spread is actually huge. It's like um I don't know 2% or something. But when uh things are volatile, spread can go down to almost zero. But the weird thing if arbitrage is not happening then spread can go negative because it's not uh well it's not worth the gas for arbitrage traders to trade and that is what happened on October 10 and I thought oh my god this should be inherently lossy when the spreads are negative um because like AMM gives out value um and that's happening because gas was very high and it was not worth

the trade for arbitrage trade. ers and at the time TVL was still a little bit small. So bigger TVL is better. For bigger TVL gas doesn't matter but for smaller TVL it does matter. So uh and the TVL was smaller. So I thought well maybe TVL is too small for this gas prices and um Mallay tweeted about that but then I uh actually studied it more like did the system actually fundamentally make money or lose money at that time. Um because it could be either if arbitrage is not happening and it relies on arbitrage. It appears that actually it net earned money. So it was uh that uh crash was actually good. Uh

probably it would have earned more money if arbitrage was happening better. But yeah, it was interesting. And what's even better after this crash someone like turned volatility on like Bitcoin woke up started being volatile and volatility is what earns yield in yield basis. So it was actually very very good. Uh well I mean not to say that I wouldn't call the crash very very good but volatility turning on was uh was a good one. And by the way, this crash was uh well allegedly called by USDE debagging on Binance, but on curve USD did not dep

um all futures or whatever looking at price on Binance, but it was their own price. Thank you. uh your microphone is off. >> Yeah, that's that's great to hear that yield pages performed so well in that context. I mean let's talk a little bit about the metrics around the launch like what what have you learned about the behavior of the system and I realize it's still early phase right because >> it's still early phase indeed >> it's kept and that's good or cap was going up gradually right so first the goal was to to actually verify that everything is working as expected

although there were multiple audits and everything. You can never know, right? Uh well, it it looked fine. Then the cap caps were raised and right now the caps are at 150 millions total and that is a healthy number to make sure that gas is not an issue and system performs as as it should. A few things uh I found few things on the way while uh this was operating. So I would be rolling out a new version of the pools with liquidity migration. Um I think the biggest um thing is how value is split between staked and unstaked. Uh when you it really depends on how you measure profit

and how you measure profit. This metric is inherently volatile and this volatility of this profit metric it um it goes into the value of staked tokens right. So you want want this volatility to be as small as possible. So I started thinking about it after talking to multiple people and I realized that I actually can reduce this value volatility by about factor of 10 and um I implemented that in one day. Um a auditors are still looking at it. uh and uh well I think we are about to put this new version out and migrate liquidity to

the new version of the pools to make um this value volatility smaller because like otherwise you have like growth happening. It's actually measurable what the growth is, but the real value it fluctuates around this growth and uh you know it's uh like people saying oh my god I'm uh I'm down 1% why and then oh my god I'm up 2% in one day what's going on and uh but it's really noise around the growth and growth is not that fast you cannot grow 2% in one day and you cannot drop the fundamental value by 2% in one day you just have jumping around

happening around this growth. So, uh I I'm just I just figured how to reduce this growth uh so this um um volatility somewhat and uh that's uh uh well that's worth a new version before scaling up more because the eventual scale which can be is much much bigger than it is now. So we got to figure out everything before we scale. >> So regarding scaling right now um I mean yield basis right is this vault where I'm as as a bitcoin user I can put my bitcoin into the vault and

then that provides liquidity in curve right for a curve USD >> pool lift these bitcoin versions. uh of course you could imagine scaling in a few directions right like one could be maybe providing liquidity also on I don't know unis swap or maybe other types of amm >> no no you cannot do that I guess I can I I cannot imagine how you can do it on top of swap really >> okay >> like it just wouldn't work uh it wouldn't be maybe maybe you can but >> uh not really I guess Okay. So, so you think yield basis is really like

>> we will will just serve on curve providing liquidity on curve. Okay. >> Yeah. >> And then >> and then initially right we have to focus on Bitcoin and of course Bitcoin is >> the largest asset by far. It's also something where it's hard to earn yield in other ways. >> Right. Right. Well, I guess the idea is that I want to get most of Bitcoin background liquidity uh from Yeah. away from uh centralized exchanges to onchain just essentially like it happened for stable coins.

>> Yeah. Yeah. And uh what is your expectation? I I think you did some like modeling with historical amounts and I guess we have a little bit of of real data now, but what what do you think would be the kind of yield that people will be able to earn? >> Well, it's a good question because after October 10, the natural APR appeared to be super high, like 20%. Um, and I don't know if it sustains, but so far it does. um for some reason uh so 20% APR in for just from the fees right now uh and I

cannot really promise that it stands like that but that's what observations show so far but 20% APR I mean I presume if you remove the caps then uh people are going to be like 20% is incredible let me put my bitcoins in there and then you you'd end up with The question is what's yeah it's not the token APR so it's it has nothing to do with tokens it's uh the APR from Bitcoin volatility so if it can go down if liquidity in yield basis starts suppressing Bitcoin volatility globally and question is where is this limit how high is the

liquidity to suppress Bitcoin price fluctuation ations. >> So the 20% is not something that primarily comes from the trading fees but it's something >> it it is well I mean it is from trading fees but trading his come from volatility >> right because people basically say oh it it you have a decoupling between the curve pool and like the so it's arbitrage yes and it matches the numbers pretty much match the arbitrage model so my simulation ations simulate arbitrage and it's almost arbitrage.

It's a little bit bad more than arbitrage because you have natural swaps like by cow swap or kyber or even curve ui. Uh but I think around 80% of the trades at least is arbitrage and I counted on 100% arbitrage when I was simulating. If you have natural volume being bigger than than zero, right? Then of course you have more revenues uh than just arbitrage.

But even just arbitrage is giving you good numbers. So So then you you think um yield basis can like how how big can it accommodate? I mean can it it can be billions? Can it be like $10 billion worth of Bitcoin or like >> Good question. I tried to estimate when does it start affecting Bitcoin price and like when will it affect its own yields by its own liquidity by by the means of making Bitcoin more stable? I think it's um something around 50 billion TVL I guess. Right. So, well, I mean I mean it's not uh unimaginable.

It's comparable to RV TV. All right. >> Right. It's uh so it's not like uh something we've never seen. It's just uh I mean it's just making really good fees, but TVL is u not something unmentionable. >> Yeah. Yeah. That's that would be enormous. >> Yeah. That's the goal. Well, of course, we have not only Bitcoin, we have also ETH and we can uh make liquidity for ETH and who knows, maybe something else. But we shouldn't really get too crazy because I'm pretty sure it cannot work with uh very volatile uh coins like um I don't know like DeFi tokens or meme

coins. I cannot think it will work because they tend to sometimes change the price too rapidly by factor of two or something in one block and stay down or I don't know stay up. You cannot really work with that, >> right? Because you need to rebalance like quickly enough. >> Yeah. You you you have uh the you have to have the price being more or less smooth, right? Even with ETH price when I was modeling I've noticed that for example if you look at ETH prices during FTX collapse ETH price collapsed fairly rapidly like instantly to I don't know I don't know from what to what but it

causes it does cause some losses in the algorithm like five minus 5% on the spot. Um and that's if so imagine what happens if you use some meme coins. So, please don't do yield bases on nimco coins. >> Yeah. Yeah. Yeah. Yeah. Yeah. And then I guess even on October 10th, right, we saw like I mean I I don't know what it looked like for Ethereum there, but it seemed to drop like super fast. >> Yeah, I will include that in simulations when I'm simulating uh um parameters for Ethereum. Uh so before rolling Ethereum out all the parameters are really carefully simulated like if you um have the range of parameters different from

like seriously different from what it is now then instead of having profits you will have losses right so um >> and then in I mean in in the Ethereum example of course there is also the ability to stake Eve is it uh would you be able to somehow get the staking yield as well or no? >> I think so. Yeah, why not? >> How would you do that? >> Well, I think the simplest way would be to just use uh I don't know staked ETH instead of ETH, right? Then uh um by the way then you well what then happens?

Yeah, you you essentially would earn staken yield on top of your yield basis yield, >> which is uh I don't know, not not bad, I guess. >> Yeah. Yeah. Yeah. Yeah. >> Well, not much, but honest work, I guess. >> Yeah. Yeah. Um then do you do you what what do you think about expanding to other chains you know like I don't know like a Salana or or other EBM chains?

>> Yeah absolutely it is possible and I think um well at least that's how I planned it. It's possible to do it differently, but I planned it so that each new chain should get its own gabberous token, right? Of course uh all the investors will have their distribution honored in all the new tokens but uh otherwise the token split can be uh a little bit different so that you align with these chains I don't know marketing or whatever whatever the rules are on that chain to make sure it's well aligned with the local ecosystem and whatever. Um and also you don't really have to deal with

breaches. So you can actually uh have native um I don't know native yield bases which is dedicated to this chain and you are not relying on some I don't know some DBNs or whatever. So you it's like really living there and you like you don't introduce more risks in the system essentially. And so the way you enforce this is because I guess somebody could just sort of copy it without permission or or there's some kind of license on >> there. There is of course license but apart from that it's uh uh well it

requires some very particular knowledge to figure out the right parameters and uh you need to do that from time to time and I don't really think that uh people yet figured out how to do it properly. So, um I I would be fairly surprised if someone uh successfully forks it because it's not really uh well dumb forking wouldn't really work here. >> Yeah. Right. >> But at the same But at the same time um at the same time it is um totally possible to uh to make some deals with talented people to uh to maintain something running and whatever like

that's um that's a possibility. uh but the team can also do that depending on capacity. >> So yeah. >> So I'm also curious um about the you know the the relationship here between yield basis and curve going forward. I mean of course in some ways it seems very symbiotic right. So yield basis kind of becomes a big liquidity provider for curve. curve presumably has more liquidity, more liquid market, maybe earns more fees. Are there ways in which there are like conflicts of interest there too or do you see challenges in that kind of relationship? I think

challenges are usually um uh they usually come with public not entirely realizing how big of the return would yield bases do for curve outside um outside the token allocation part. So there is a token allocation to curve but the best use for it is to incentivize the liquidity in curve USD pools which is what will be happening very shortly. um for yield basis it's absolutely required that liquidity for curve USD will be big and uh that's essentially why yield basis may since yield basis chose curve USD yield basis makes this

allocation of YB tokens to curve so they will be used to buy votes for curve USD stable coin pools like curve USD/USDC curve USD/USDT and so on And um that will create apart from big liquidity for curve USD. It will create uh supply syncs for curve USD which means that um eventually it will lead to more loans uh in curve USD and more borrow fees but also uh all the trading which is happening in YB pools will create volume

in curve USD stable coin pools and these fees generated by curve USD pools will go to curve dows. Essentially apart from that there is peg keeper mechanism in curve USD. So if curve USD slightly deps up or or down then peg keeper steps in and essentially it essentially buys or sells curve USD and it earns money for the DAO on that as well like essentially money on uh passively trading the DEGs.

Uh they are micro daggs. So you cannot even notice them but they do happen and they do turn into returns for curve dah. So that's uh uh that's another stream of revenue and it's actually the whole streams of revenue they uh they are bigger than what I originally thought and it looks like curve DAO would earn um I would say something comparable to what YB DAO earns from yield basis. So this is uh this is what it seems to me.

>> Oh okay. So that's uh >> so so so it's it's actually fairly huge. Um it's just not all not direct revenues all the time. Uh but um you know when volatility of Bitcoin was particularly large. You probably could see that Curve USD was the the stable coin with the biggest trading volume on Curve in total already with just 150 million TV on build basis. >> Yeah. Yeah. And so the way Curve USD works it's uh it's similar to the maker D model or >> in a sense uh you can say that it's a CDP. So in that sense it's similar to

make a DAO. It has few unique features like uh reversible liquidations. So if you uh if price goes down and you your collateral gets converted to curve USD but if price goes up your collateral gets converted back to your collateral and you kind of didn't lose your collateral on the bottom. So you didn't sell the bottom. That's nice. Uh that's one of the things why Kirk USD is uh so cool. Uh another thing is stabilization mechanism of curve USD is uh well something we called pep keeper which works I think better than anything else for keeping the pack tight.

Cool. So what are the what's the timeline now in the upcoming milestones for yield basis? So you mentioned uh the up protocol upgrade. So the volatility what else is coming? Yeah, pools upgrade I think it's going to happen well either um well maybe maybe like maybe on Monday is fine because I will have all the feedback and we will implement all this in UI in UI but it's actually ready in code so um well maybe possible to do it on weekends but I don't know if people are up to that on weekends so anyway it's imminent

for the upgrade here. Uh but you need people to actively migrate liquidity because in everything I build I make non-upgradable contracts. So you cannot upgrade contracts which hold liquidity and that's by design. Um but also uh on Monday I think the vote on curve uh will finish the vote to spend YB allocation on incentivizing curve USD pools and this this YB will uh will be used for buying votes for curve USD pools and that's happening on Monday. Uh

that means that on Thursday incentives for curve USD stable coin pools will go up and the pools will start increasing their size and it means that after that um TVL of curve of of yield basis can be further increased with the caps further increasing. Um so well how long after that that will happen is a good question but technically in a few days it's ready. So that's uh I think the next step. So we have this upgrade of the pools and then increase of of the cap and then we really really need to turn

the fee switch on to connect the admin fees to vib so that vibb earn those sweet admin fees and after that the system will be uh like fully connected after that it should work for I don't know couple of more weeks in this mode connected. Uh so well first of all as I said we we would be ready to raise t to raise the caps after uh curve stable coin pools get incentives and uh the raise should be then to maybe half a billion and uh then we need to connect um admin fees to the EYB. After that is

done, I think in a couple of weeks we would be ready to raise the caps a little bit more than half a billion. I don't know 1 billion or two billions or something. We will see. Um and um after that we will we probably should watch and uh continue raising the caps. You cannot really raise the capsu instantly because you you don't want to affect curve USD stability. You really grow two things together. yield yield basis growing up and curve USD growing up because curve USD is used as the stable coin uh in uh yield basis of course I could try to make a deal with some of the established stable coins I don't

know Taylor or something but you know I created uh Curve USD curve USD is um making revenues for Curve DAO and I'm very incentivized to do it for to do it with curve USD. So, uh yeah. >> Cool. Cool. Well, it's fantastic. I I really enjoyed the conversation with you and uh I think it's a super interesting, fascinating protocol and I I Yeah, I think this could absolutely become massive. So, it's been really uh exciting to talk with you about it and to sort of uh be a part a little bit of this evolution and I'm I'm really excited to see how yield bas is going to develop in the next, you know, in the

next months and the next years. >> Absolutely. Absolutely. It's uh it's a fascinating thing. I um I'm very excited to see that it actually actually works and it actually works as uh predicted. Uh so just the numbers are they are pretty much matching the simulations. That's uh so exciting to see. >> Yeah, absolutely. Cool. Thank you so much, Michael. It was big pleasure having you in the show. Yep. Thank you.