Curve Founder: How To Earn Real Yield (Without Impermenant Loss)

Transcript

Other venues create pools with Curve USD to earn those fees. Maybe they take some of these fees. >> We are seeing the influx of stable coins coming into the market. >> Welcome back to the rule. >> This is your home to learn from the biggest guests, the brightest minds at the tip of innovation. >> Our goal is to help spread the collective knowledge of everyone in our community. We are breaking crypto out of its echo chamber and taking it to the real world. >> Sit back, relax, and enjoy it. All right, guys. Welcome back to this episode three of Stabled Up. I am here with Michael, the former co-founder or still co-founder of Curve, current uh founder of Yield Basis, >> I would say founder of Curve and

>> the founder of DeFi along with Andre Cron uh Kain and others. Um today's stable up show is of course brought to you by FRA powered by FRA one of the leading stable coin providers in all of crypto with FRA with FRA still their chain FRA Net coming up for the stable coin wars as well as the general work that they've been doing in the White House. Shout out to Frack. Shout out to Michael. Thanks for being here Michael. I got to ask you. I got to start off this conversation. Man, what has the last 48 hours been like? We are oversubscribed by a matter of like 50 times for what you guys were trying to raise for. Um it's been an insane week.

What is your reflections on the amount of demand that you guys saw for the yield basis launch? >> Yeah, well that that looks quite insane. I I wouldn't say it reflects into um into too much how to say um I'm I'm uh well um it's it's really surprising to see I would say right but um but yeah it's doesn't reflect into too much stress on my side. I think it's a little it was a little bit more stressful to uh to actually get the first uh deposits going

>> because you well and um I'm very glad that we started small because it's uh there were all sorts of things which um well um didn't go exactly as uh I thought so deposits started half an hour later than anticipate. ated. Um so but uh but yeah, so far so good and we uh looked at what's going on and uh um created some uh vote at curve to make sure that deposits uh will I would say go smoother uh when we raise uh the cap for them again. And actually this is

kind of something which is um I would say where it probably should be a little bit more stressful than watching the Legion thing, but Legion is is really like well how to say um I think we had um some sort of nonsense season in crypto mostly with meme coins and stuff. Not to say well I wouldn't say that meme coins are always useless but I think uh most in in that season were right. Um so well maybe about 100% of them and I think uh people kind of

got a little bit of tired um from >> uh pure speculation. So they wanted to see something real >> and I think we are seeing u real projects coming up. >> So yield basis is definitely one of them. >> Yeah. I mean I think there is demand for that fundamental type of investing if you will or at least understanding that there's some some real backing behind the project and I think that's what you know you guys have. It it's been a crazy week. Andre Cronier announced this $200 million raise with this new, you know, tokconomics thing. You know, you guys, Michael, have came out with this huge um

kind of over subscribe round. Talk to us about the Kraken Legion yield basis collab, right? So, you know, in about one hour, we're going live on Kraken for the first Kraken launch. I think it it was possible to guess because when we just opened first deposits um the well the first the initial cap for deposits was very small like 1 million essentially well 1 million per pool so it's like 3 millions and that was filled in I don't know half a minute when uh at least when it appeared in UI and we had someone figuring out how to deposit before it appeared in UI. So,

and I think uh we see pretty much the same in Legion uh but with uh like well over a little bit longer time. >> Yeah. So, how did you come to make the partnership with Kraken? Like, you know, they had this new launch and they chose you guys. What how did you guys uh Yeah. So we didn't actually originally plan to do it but um we thought well maybe well Kraken is a very legitimate brand of course and um and they are essentially launching this uh Legion thing. So it would be uh probably interesting to be the first

project uh in in their um like in in the sequence of projects they will be launching. So maybe that uh creates a good um a good awareness essentially and uh >> I think it did >> and I think Yeah, I think it works. >> Yeah. All right. Well, Michael, I don't want to get too deep into just the actual sale part of things because I think that's just a small part of what you guys are doing and looking to accomplish. Um maybe what what people would like to hear about is, you know, kind of the overarching picture of what yield basis is. And then I think the main question is just like why do you need a token you know like okay we're

doing this big sale maybe you could uh you know walk us through the yield basis you know strategy and vision here and then loop us into what people when people are investing or you know allocating to this taking their own not financial advice here taking their own risk to you know invest what what is the value that they're going to get from this yield basis token um you know how does it fit into this grander picture maybe let's start with with the updated vision. It's been a couple months since we last spoke and uh you know how does how does the token tie in?

>> Right. Yeah. So uh yield basis uh earns yield from essentially bitcoin and maybe other cryptocurrencies volatility uh by removing impermanent loss in amm. So it actually will be able to earn yield from fees um without well without being affected to the price fluctuations. So that's great. Um of course if you loan crypto u and uh in principle it can work without a token in principle and I even had this idea before I started it. What if I make just a traditional company which runs essentially an AMM and um makes money on

it and that's about all it right. So that of course could work. Um but I think if um well um I realized that this thing should benefit uh curve a lot as well, right? And um and I guess it would be really good to to grow it pretty quickly. And if you want to grow it quickly, you want a token and uh you want of course this token to be connected to all the token economics and value capturing mechanisms.

And um I think u tokens are very good for bootstrapping communities. But you have to have economics actually working to have uh long-term success of any token. I think >> of course. >> So uh and um also I did want to check uh new ideas about um how to well how to build sustainable token economics. M >> um so I think maybe many people are familiar with VE tokconomics which was uh I think uh I created it for curve and then it was adopted by many many more projects. So it's um I think um good

examples today would be pendal um Iraome and so on. So they uh use uh ve tokconomics in um different forms. So it's not kind of all the same flavor but idea is the same. When you vote, your voting power is proportional not only to tokens but also to time. And your earning power like the power to earn fees from the system is also proportional to uh not just token amount you locked but also time before unlock essentially. And having this time component appears to be very very good because like in curve I uh saw that um the revenues which are earned by people

who lock tokens are essentially well not revenues I would say the speed with which tokens are removed from circulating supply is um three times faster than buyback. back and burn, right? Well, and in principle, buyback would have the same speed as buy back and burn, but buy back and burn is strictly better for everyone than just buy back because if someone buys tokens back, then they are uh able to sell them later. And if they buy back and burn, they are not able to sell them later.

And here it's lock. So people in order to participate in the system and earn fees, people lock the token. And it appears that they lock tokens uh on average with the speed three times faster than buyback and burn. And they don't tend to unlock, they extend the locks to continue this process. Um and that's that's interesting. In principle, sometime like after many many years, maybe decades, uh the speed of lock in tokens I think should be become equal to speed of buyback and burn maybe but I think initially

uh it removes tokens from circulating circulation faster but I don't know it's just a hypothesis nobody uh really studied that that deeply because it didn't exist and um yeah um and I just decided to do some modifications to this um to this model. I think one of the most important modifications is not about the locking itself but about token distribution. So it's applicable to any protocol which distributes tokens for participation. And basically uh one thing I I like the biggest small thing I did here is I've split between users who want to earn tokens and users who want

to earn real yield. So you can you can choose what to earn tokens or real yield but not both at the same time. It makes contracts a little bit more complicated, but it makes uh it a little bit easier for users because like if you want real yield, you don't really have to care about um tokens when you integrate that, you can use it as collateral and so on, right? Uh so and you like today many people farm protocols and dump tokens because they want to earn essentially real yield. Here they don't have to do it. They just uh choose to earn real

yield and market forces will make it will make the yields in tokens and real yield probably equal. All right. So um well at least that's what I think um >> we'll see how it works but that's the idea and I think it can be applied well outside yield basis. So more governance experiments >> habachi provable trade purps with speed and security earn rewards visit hibachi.xyz XYZ trading on fire. The future runs on intelligence, creativity, engineering health money productivity, AI promised utopia, but

delivered only hype. Blackbox models and zero accountability. With tons of tools claiming to be the best, how do you know what's real? Introducing Recallfind. Top models ranked by transparent reputation from researchers, users, and developers. Test AI skills. Curate favorites and compete to see what works. Don't guess what's good, recall it. >> I just got some quick uh thoughts from people in the in the community. Yes, Jay Rana, that that Ether Scan link is correct. There is $182 million of USDC in the contract still with some yield basis ERC20s in there. So, that is in

there. I Ash King says, "I didn't see anyone who got allocation." I mean, Michael, >> I think yield basis CRC20s are not yet out. >> Oh, sorry. There's a uh >> Okay, so maybe Yeah, maybe guys, just be careful if if you're seeing any yield basis tokens out there. Um, definitely just be careful. Don't >> I've seen a few and they are not not real. >> Okay, so just be guys be careful out there. Um, yeah, Kraken and Legion. Yeah it's somebody's, you know, Maggie's saying that the uh, you know, that was hard to navigate some of the websites because it was down. There was so much traffic, guys.

>> Yeah. Yeah. Like I think people were so interested that it it actually crashed. >> Yeah, I saw YouTube put out an announcement. So, sorry about that, Maggie. And then Ash King, I didn't see anyone who got an allocation. I mean, there was $5 million available for 200 million of demand. So, you know, hard decisions were made. Anyway, uh Michael, back to you. Um when we're thinking about yield basis in this context of what I'm considering the stable coin super cycle, right, where we're just we we are seeing the influx of stable coins coming into the market. Uh Secretary uh Treasury Secretary uh Bessant has alluded to wanting to get to $3 trillion

of stable coins by 2028 on chain. Yesterday, Stripe came out and said that they have they're launching a new issuance platform, open issuance to allow anyone, you know, with some sort of credit credibility and credentials to launch stable coins. How do you view yield basis and the product around Bitcoin and kind of solving impermanent loss in the lens of the stable coin adoption that's happening? How do these two kind of worlds collide and how do you see yield basis uh you know being a beneficiary of the stable coin adoption that's happening >> right well I would say

beneficiary of stable coin adoption is probably curve right um and of course more stable coins is better uh but also uh curiously enough if If you have more stable coins, then you can uh I would say make um CRVUSD more stable. Um you diversify what CRVD stabilizes against and uh it will have more roots to uh to be exchanged to and stable coin survey USD powers um yield basis. Well, in principle it could be anything, but I think Serv USD

is probably the most stable stable coin which is still not the centralized stable coin but decentralized and it's it's very convenient to uh power yield basis and curve will of course benefit from that. Uh so I think that benefits of these this stable coin adoption are probably more about curve than about yield basis. But who knows? Um, one one thing, well, you can call it conspiracy theory, right? So, um, when you have more stable coins and more TVL sitting in stable coins, I don't know, trillions, right?

Sitting in stable coins on um on chain and backed by T bills or whatever, right? That's um um well that's kind of kind of a little bit like a representative of uh inflation or maybe for some uh for some people it will look this way. So the more stable coins you have, the more you have the urge to hedge away from US dollar, to crypto, maybe to Bitcoin, maybe to gold, maybe to Ethereum, uh who knows? But it's possible that yield basis is uh applicable to any of these assets.

So anyway, uh I think stable coin adoption means that we might have some volatility in crypto prices and that's good. >> Yeah. Yeah. And so I mean I think for for people who just want to get an understanding basically yield basis has effectively created a a strategy such that uh back testing back testing the bitcoin volatility assuming dampened volatility going forward. the strategy should work to basically create this uh increased yield opportunity for Bitcoin uh you know users who deposit into uh yield basis without suffering the impermanent loss that a lot of DeFi uh

struggles with. Can you just give us the 902 how this works? How is if Bitcoin's volatility goes lower for the next you know 5 years >> how does yield basis capitalize the most compared to anything else on the market? >> Well um of course it all depends on the type of Bitcoin volatility which will happen. But if it simply goes down then yield basis will have to reparameterize the pools and make them uh denser right. So make them um suitable for more stable assets.

uh well you can say that pools they um concentrate liquidity right and I think the first concentrated liquidity pools which appeared on the market were curve in 2020 right so it's kind of the same algorithm but you have this dense liquidity moving around automatically right uh if asset is less volatile then maybe you have less revenues But you have you are you can afford to concentrate liquidity denser and when you concentrate it denser then you take bigger um I don't know um you you

increase capital efficiency essentially right so um you cannot have high capital efficiency if asset is highly volatile um so and if volatility of the asset goes down then you have to increase capital efficiency And uh this is just done by a parameter. Um and you cannot afford to have high high capital efficiency when the market is too volatile. All right. So uh I would say that we just have to recalibrate everything u by looking at how the market uh proceeds and uh we have a solid models to to do it.

>> Yeah. Awesome. And Michael, when the actual uh uh platform token goes live and the product goes live, is is the main pool going to be a Bitcoin USD? Uh like >> Oh, the actual pools are live already. >> Okay, the pools are live. Sorry. >> And and it's um well, the pool serves swaps between three types of Bitcoin essentially and Curve USD, but uh users deposit just the Bitcoin part. >> Okay. And so the impermanent loss that we're going to be avoiding is going to be coming from the Bitcoin or any form of the Bitcoin, you know, wrapped, etc.

And then paired with Curve USD basically. >> Yes. >> Okay. And Okay. And so this is a big play for you to expand the Curve USD demand. >> Yes. >> Obviously. And then that's going to help Curve CRV. >> Yeah. And by the way, this um this runs in new type of crypto pools on a curve which are not only useful for uh for yield bases and for bitcoin. They are very useful for exchanging um essentially uh national currencies of different denomination like stable coins in USD versus stable coins in euro

something like that. It's exactly the same code of pools. Um maybe you don't really have to run the full yield basis thing, but you can just run crypto pools and uh it's currently happening on curve to um to essentially set up curve as the prime foreign exchange uh venue on chain. Um >> and so so it's uh pretty much well yield basis is um some interesting tech on top of interesting tech >> and uh >> but I see it coming together where it's like yield basis provides value to CRV USD gets more liquidity more depth more

more demand just to own it and then CRV USD allows the CRV flywheel to really actually take off >> Right. Right. Yeah. We uh we've been discussing with some um some people online uh how this uh benefits curve because one one component which is fairly interesting is that when you swap between Bitcoin and USD, you have curve USD normally somewhere um on the way, right? So maybe you want to exchange WBTC to USDT but uh you have W BTC to CRVUSD pool. So what happens is WBTC to

CRVUSD to USDT and you have this uh CRVUSD to USDT way uh earning fees for curve. So the concern was what if other venues create pools with curve USD to earn those fees. But then the question is um well maybe they take some of these fees but then they create liquidity for curve USD and they make a supply sync for curve USD. So maybe they uh have curve USD adoption uh spread in this way or maybe centralized exchanges will list curve USD because they would see volumes because of yield basis working essentially. So it's a an interesting

way how that will turn out. >> So Curve USD total uh supply outstanding right now or market cap is about 120. >> Yeah, something like that. >> 5 million. >> Mhm. Yeah, I think something like that. >> So this is your this is your plan to get it to a billion, >> I guess. Or billions. >> Uh well um I mean it's a good question where the limit is right. Uh >> yes like where do you go from here like what does yield basis take you for curve USD >> right well I mean uh a billion is quite imaginable but I think um if you want to calculate absolute maximum it is determined by uh what will dampen

volatility of bitcoin and I think that would be somewhere around tens of billions >> the wait is over The Talis testnet is live. Be part of the revolution. Join now at testnet.talis.network. Relay low fees, lightning speed, and the power of multi-chain at your fingertips. Instant multi-chain payments. Choose any token on any chain. 75 plus network supported. More than 5 million users. 8 billion plus volume processed. 70 million plus transactions. Fast, reliable, everywhere. Start swapping today only on Relay. Blockchain

shortcuts, templates, and widgets launch without friction for builders by builders. Visit enso.build. Do you think yield basis is going to bring tens of billions of stable coin demand for CRVUSD? >> I think that's possible. >> Wow. >> I wouldn't say I wouldn't say say for sure because like um who >> I'm going to have to start a prediction market for it. >> Yeah. Yeah. No one can uh predict the future. I wouldn't play on prediction markets. I can uh I can give predictions but I will not bet on them.

>> Okay. Um Michael, talk to us about how you chose to do the vesting schedule for uh the pre-sale participants as well as the um just the last thing that that I wanted to ask on token side. You know, it's fully unlocked on uh you know at TGE for all the Legion participants as well as Kraken launch. Why did you choose that? And then and then what unlocked it? Yes. So, um yeah, that's that's actually a great question. >> Back when curve launched, the initial supply of CRV was zero, right?

And um well, price is essentially coming from um from demand divided by supply. when you have division by zero you have infinite price. So uh that's what happened with CRV initially and after you have infinite price starts going down. Nobody likes price going down. So you have to have initial supply. Uh and uh you need to give it to someone. So and who to give it is of course yeah you know there there is this question but that there should be some liquid supply and that is

what um what it is. >> Cool. >> At least part of it. >> Yeah. Yeah. Makes sense. And then um okay so what is the timeline here to that? Like are we think is this like an October launch? Like because in order to get the pools really to where you want them to be, the token is a necessary part. I know. >> Are the pools are are the pools ready? Like are you confident in the pool? >> They are. But I'm testing and checking things all the time.

>> So that's why we started with smaller cap and also a curved down. participants really wanted that way and I'm glad that they did. So now I think we are ready to expand the caps a little bit but after that we probably will need to expand caps again. Uh but anyway uh I'm checking uh all sorts of plausible plausible issues which nobody could have thought of all the time so that uh to to ensure that everything is uh safe. Yeah.

>> But yeah, safety first. That's essentially why um why you cannot really um have um I don't know have trillion cap in day one, right? >> Yeah. Yeah. Um all right. So, kind of I don't mean to go all all over the place here, but I just wanted to ask those two token questions before I uh you know got out of here. Just quick uh quick couple things from the fans. Hey, Michael. How will you make sure people keep locking VEB for the long term once the early rewards slow down? That's from Broccoli.base.eth.

>> Oh, uh, actually people who lock VYB, they don't get um rewards themselves, they get fees earned by YB, right? And fees are obviously bigger when you have bigger uh TVL sitting in YB, but they are real fees like real yield. So uh VB get apart from what's going to real yield. >> Okay. And so PE so you'll make sure people keep locking YB even once the early rewards slow down because >> Yeah. But but it's not like rewards are not going to VB. That's the thing.

>> Okay. What goes to VB is real fees >> and real fees depend on what market is doing not what rewards are doing. >> Got it. And then Maggie's asking is Convex or CVX accumulating YB. >> I think uh they could I mean they have all the opportunities to do it. >> Okay. Uh Brock Lee says thank you for the answer. Um so Michael back to the curve USD stable coin component. And I think this was a really really interesting kind of thought experiment and process here. So let's say we get billions of of dollars of demand for CRVUSD.

What does that do to the curve flywheel? Like how does that enable a more positive curve ecosystem? And then how does that value then go back to yield basis as a result of it starting with yield basis? it goes to curve and >> oh no no yield basis does get value just from fees which are earned in BTC to curve USD pools so yield basis already gets this part um and it needs to share the value with curve obviously there are two ways to share the value well several ways but uh one way is uh there is some allocation of YB tokens which is going with the speed proportional to inflation to curve and curve decides where they

go. The best thing I think is to put them to incentives uh of stable coin pools which swap with curve USD to promote curve USD even further. When curve USD will be promoted um I think uh the well it's like supply sync going up so we will have more loans in Curve USD and Curve will earn even more over there. Um and yeah so essentially you have um yield basis um powering powering curve and um yeah I already explained with the curve USD tracing part so I

think it's like uh things going uh hand in hand. >> Yeah. Yeah. Okay cool. Um, and when you're thinking about the actual VEB token, um, people are have a little bit of PTSD from CRV and all of the copycats that came after with the VE model. I know you guys shortened the total period down from the initial uh uh uh time lock, I believe. Or maybe it is still the the same four-year maximum. Um, >> it's still the same for you.

>> Okay. Okay. So, so >> but there are some there are a few differences. maybe you could explain those. >> Uh yeah, there are a few technical differences. You can uh actually if you have max locked position, you can um transfer it around as a whole, right? Which is um which is more convenient when you want to move it to some I don't know multi-ig wallet. So we don't disallow smart contracts to own it. That's uh one thing. Another thing I think uh in in curve we have this mechanism of boosts where owning um locked tokens gives you ability to earn

more um more tokens for your liquidity right at the expense of those who don't have uh lock tokens. But actually uh looking uh over long term it looks like that leads to consolidation of uh VECV voting power in uh few actors who are really good actors though but it's a little bit uh not not like not super not super diverse I would say. So and uh there will be and and this boost mechanism is also fairly complicated. So I think it was better to uh go without it and uh that's uh what I did here.

So it's but but nevertheless uh all the rappers around VE tokens they still do make sense right when you buy a rapper uh whether it can vote or not I I don't know uh you still um like you exchange the time the locking time into um into the probability of the rapper per dagging because you have um some limited liquidity uh on the sell side.

So you cannot really exit uh the wrapper and mass and uh you you just exchange one risk with another risk. So time risk with uh um potential price risk, right? And uh well that's probably fair and uh that still achieves um even if the rapper can vote you still can achieve the original uh purpose of uh VE tokconomics which is to prevent uh governance attacks um like long-term governance attacks.

>> Yep. Yep. Yep. Yep. All right, Michael. We got a couple uh questions from the chat. One guy Ajax says no email yet. Ajax, I'm sorry. It was 40x overs subscribed on Legion. Um hopefully you can get in the first come first- serve sale. Justin says very bluntly, Michael, when is TGE? I think we kind of spoke on this. Uh maybe you could just quickly rehash the road map. And yeah, I will I I cannot tell the exact dates yet, but uh really uh we need to to have pools working a little bit with well with tiny bit of liquidity like now and with a little bit more liquidity and after that

I think it's uh uh it's reasonable to uh to do the TG. Yeah, >> but I I cannot tell the dates exactly yet. Got it. Cool. Cool. Cool. Uh I'll let you know if we get any more. U I just got a couple couple last things for you, Michael. What is the what is left for uh the like so okay so we get to the uh token launch we got the pools up then after the pools are incentivized with the token and you got this kind of dual optionality system for people that want real yield or or YB what is left from you guys after that on the development side like what do you need to do to go

from that place to the next place One thing is that we are definitely probably the most um the most um knowledgeable ones currently uh in terms of running uh simulations and and being able to figure the parameters of the pools. As I said before, the parameters depend on volatility and volatility changes over a long time. So we will have to change parameters over some time I guess and when we add new assets we need to calculate new parameters for the new assets. Obviously Ethereum is more

volatile than Bitcoin and BNB is more volatile than uh Ethereum and which assets are good to add in yield basis. um and what what are should the liquidity concentration be what should the fees be is something uh one needs to calculate. Another thing if we do some research and come up with mechanism which actually earns more then it's good to implement it. Remember the liquidity is 2x leveraged over there. So if um if having some I don't know some dynamic fee which is better than what we did

makes us plus 1% in APR uh in YB that would turn into plus 2% in APR. So you amplify all the improvements by factor of two and that's not small. So this is uh uh well if we create in future we can create new pools for the same assets which earn more because we let's say come up with some uh mechanism to do this more efficiently. So that's uh I think um yeah I I think that that's where we we will still need to oversee it. Oh, of course. Well, I mean, anyone can, right? But uh uh but yeah, I it's

I'm just not even uh very much aware of anyone else uh doing simulations of uh trading activity which which actually matches the reality within I don't know within few percent like I mean few percent precision. So let's say uh if if you have simulation showing um I don't know 3.4% APR uh and you have the real pool doing 3.3 or 3.5% that's probably good right and I don't think I've seen this this kind of precision anywhere else uh outside the simulations we do.

>> Michael last thing for you. any alpha on which which assets you're thinking about next? >> Um you mentioned some >> I think the probably the most obvious one would be Ethereum itself. >> All right. Um I don't know maybe maybe Ethereum maybe Ether maybe staked Ether. Uh I need to think but Ethereum is a definitely a good one. Um what else? We will see. I always try to look at gold, right? I don't know. I don't know if it's possible. It's just >> tether gold. I mean, it could work. It It could work.

>> I mean, it just sounds fascinating. I I want to have this brick of gold which becomes bigger and bigger on my shelf. Right. >> Michael, Michael, Michael, thank you for your time. I know it's busy over there. I know you got 20 minutes or so until the sale on Kraken. I'm going to let you go. I'm sure the team is hands down, heads down right now. Appreciate you you jumping on and uh yeah, it was a great session, man. Sounds good. >> All righty, Michael. Speak soon, buddy. Bye. Thank you.