Curve Finance and Yield Basis Forge Strategic Alliance to Boost crvUSD Stability and Liquidity

Curve Finance and decentralized finance (DeFi) protocol Yield Basis (YB) have revealed a collaborative strategy to expand the reach and stability of the crvUSD stablecoin while fortifying YB’s ecosystem. On October 20, Curve Finance founder Michael Egorov shared the comprehensive framework on X (formerly Twitter), detailing measures aimed at stabilizing crvUSD’s peg by reshaping liquidity pools and aligning token incentives.

Strategic Measures to Enhance Liquidity and Stability

The proposal outlines three core initiatives designed to elevate liquidity and optimize economic sustainability for crvUSD:

H2: Utilizing Yield Basis Token Reserves to Incentivize Liquidity

Curve DAO plans to leverage its reserve of YB tokens to incentivize liquidity in crvUSD pools such as crvUSD/USDC, crvUSD/USDT, and crvUSD/pyUSD. A dynamic system could allocate up to 360,000 YB tokens weekly to reward liquidity providers (LPs). Additionally, collaborations with stablecoin pools like crvUSD/frxUSD are expected to refine reward mechanisms further. This incentivization process, often referred to as "bribing," uses financial rewards to encourage specific trading actions that enhance pool activity and liquidity.

H2: Expansion of PegKeeper Limits

A proposed increase to the PegKeeper limit, from $108 million to $300 million, aims to reinforce crvUSD’s ability to withstand market fluctuations. By bolstering liquidity reserves, the expanded limit would safeguard the stability of crvUSD’s value even amidst volatility.

H2: Allocating crvUSD to Yield Basis Ecosystem

Under this plan, Yield Basis would receive up to $1 billion in crvUSD, enabling it to maintain $500 million in Total Value Locked (TVL) within its system. This allocation is projected to significantly enhance liquidity across Curve’s stablecoin pools while expanding YB’s overall DeFi impact.

Egorov emphasized that the utilization of YB token reserves and PegKeeper limit expansion are critical steps for Yield Basis to scale its ecosystem. Additionally, the integration of administrative fee distributions promises to align YB token valuation with real-time economic performance, adding another layer of long-term stability.

H2: Importance of Systemic Liquidity for crvUSD Peg Stability

The proposal highlights how the crvUSD peg is tightly linked to liquidity dynamics within Yield Basis’s ecosystem. Specifically, YB pools that focus on Bitcoin-backed assets—such as yb-BTC, yb-cbBTC, and yb-tBTC—play an instrumental role in stabilizing crvUSD's value.

For instance, when traders sell Wrapped Bitcoin (WBTC), the proportion of WBTC in the yb-WBTC pool rises while crvUSD's share decreases. This creates an oversupply of crvUSD in liquidity pools like crvUSD/USDC, temporarily weakening its peg below $1. Conversely, WBTC purchases reduce crvUSD availability, driving the peg above $1.

At present, Yield Basis pools collectively manage $300 million in assets, maintaining debt ratios of around 200% collateralization. However, the share of crvUSD in these pools fluctuates between 40% and 60%, requiring the system to absorb approximately $30 million in crvUSD variations. To counteract this volatility, the proposal estimates the need for an additional $40 million in stablecoin liquidity, given Yield Basis's current TVL of $150 million.

H2: Financial Sustainability of Revenue Models and Incentives

Yield Basis currently projects lucrative annualized yield rates: 15.8% for WBTC, 21.1% for cbBTC, and 13.0% for tBTC. These rates translate into revenues of $63,000 per day and $442,000 per week—adequate to fund liquidity incentives and administrative fees.

The proposal calculates that maintaining $40 million in TVL would require a 10% Annual Percentage Return (APR), equating to $4 million annually or $77,000 weekly in incentivization costs. With weekly revenues of $442,000, Yield Basis is well-positioned to absorb these costs while fostering growth.

Additionally, Curve DAO generates as much as 7.5 million YB tokens weekly from inflationary streams, valued at approximately $158,000 at prevailing rates. Considering the bribing efficiency ratio of 1.5x, Curve could derive up to $237,000 in real value via CRV-related voting incentives—three times the $77,000 weekly requirement.

H2: Expanding PegKeeper and Long-Term Outlook

By focusing resources on robust liquidity incentives, Curve Finance anticipates growing crvUSD pools to an estimated $120 million while creating supply sinks for up to $60 million worth of crvUSD. For Yield Basis to achieve $500 million in TVL, a further crvUSD absorption capacity of $133 million would be necessary. These dynamics reinforce the case for expanding the PegKeeper limit to $300 million, nearly tripling the current threshold.

H2: Conclusion

Curve Finance's proposal, featuring strategic bribing mechanisms, enhanced PegKeeper limits, and efficient allocation of economic incentives, aims to achieve a dual victory: strengthening crvUSD stability and fostering Yield Basis’s growth. Successfully scaling crvUSD’s liquidity infrastructure and aligning token performance with systemic health paves the way for YB to reach $500 million in TVL. This collaboration represents a significant milestone in advancing sustainable scalability and stability within the DeFi sector.