Impermanent loss has been a major factor preventing crypto holders from becoming liquidity providers on decentralized finance platforms.
Yield Basis, a protocol developed by the decentralized finance (DeFi) platform Curve Finance, mitigates impermanent loss for tokenized Bitcoin (BTC) and Ether (ETH) liquidity providers (LPs), while also creating a market-based approach to token inflation and emissions, according to Curve founder Dr. Michael Egorov.
Impermanent loss in crypto occurs when the price of assets deposited in a liquidity pool dips or deviates in a way that leaves the user with fewer funds than if they had simply held their crypto and not engaged in liquidity provisioning.
Dr. Egorov told Cointelegraph that when funds deposited in a liquidity pool are proportional to the square root of Bitcoin’s price, it creates impermanent loss. The Curve Finance founder said:
