Yield Basis proposes dynamic-fee Curve pools with simulations showing LP returns increasing from 3.6% to 8.5% annually.
DeFi & Yields ·
Yield Basis has proposed a protocol upgrade for Curve pools that incorporates market-aware pricing and dynamic fees to improve liquidity provider returns. Simulations spanning the prior 18 months showed a WETH position earning 8.5% annually under the new design compared to 3.6% with current pool settings, driven by reduced arbitrage losses and higher trading volumes.
The upgrade, termed a permissionless propAMM, uses signed price feeds from Pyth Pro to adjust swap fees based on how much profit a trader captures at market prices. Arbitrageurs and other traders moving the pool toward market rates pay a base 0.50% fee when their edge is minimal; fees scale up to 1.75% for larger edge trades. WETH LPs require no action, as the design applies automatically to existing positions. The WETH pool deployment is planned first, with Bitcoin pools to follow upon successful launch.
The mechanism addresses a long-standing AMM problem: the gap between on-chain pool prices and external market prices creates loss-versus-rebalancing, where LPs absorb arbitrageur profits. Fixed fees cannot resolve this tension—low fees benefit arbitrageurs while high fees suppress retail trading. Yield Basis' dynamic approach retains approximately two-thirds of arbitrageur profits above the minimum fee within the LP pool itself. Whether this design will achieve the simulated results at scale and how it will integrate with existing Curve governance remain to be demonstrated.