yieldbasis · 2026-10-28 15:13 UTC

Yield Basis: A Major Upgrade to AMM Efficiency Yield Basis introduces the permissionless propAMM, a major upgrade to how liquidity works on Curve. By combining market-aware pricing with dynamic fees, the new design aims to increase trading volumes, reduce arbitrage losses, and improve LP returns across different market conditions. In simulations of the last 18 months, a Yield Basis WETH position grew 8.5% a year in ETH with the new design, against 3.6% a year with the current settings. What this means for you: WETH LPs: You do not need to do anything. The new design is applied to the pool that holds your position. Traders and arbitrageurs: Small trades that move the pool back to the market price pay 0.50% Everyone: Anyone can deliver the price, anyone can deposit, and the code is public. The WETH pool is first; the Bitcoin pools will follow after the successful deployment of the WETH pool. Why AMM liquidity providers lose money An automated market maker (AMM) is a pool of two tokens that trades at a price set by a formula. People who deposit tokens into the pool are liquidity providers (LPs). They earn a fee on every trade. An AMM pool does not know the market price. It learns that the price changes only when someone trades against it. If ETH were to increase in price on Binance, the first trader to reach the pool buys ETH at the old, lower price. That trader is an arbitrageur, and the arbitrageur’s profit is the LPs’ loss. Researchers measured this loss and called it loss-versus-rebalancing. LPs earn money only when their fees are larger than this loss. This has been the main problem of AMMs since the first Uniswap pool in 2018. A fixed fee cannot fix it: A low fee lets arbitrageurs keep most of each price difference A high fee stops small trades What propAMMs changed In 2024 and 2025, trading firms on Solana started to run a different kind of pool: the proprietary AMM, or propAMM. A firm sends the market price to its own pool many times a second, so the pool updates its price before arbitrageurs can trade at the old one. The results: PropAMMs carried about 36% of Solana DEX volume and about 14% of Ethereum DEX volume in October 2026 ((Blockworks, 21 October 2026). On SOL/USDC in March 2026, the median propAMM trade filled 0.72 bps from the exchange mid-price (Jump Crypto, self-reported). From September 2025 to August 2026, propAMMs gained on their trades and public AMM pools lost on theirs, on Solana and on Base (Solmaz, Heimbach, and Milionis, 2026). But a propAMM keeps the benefit with one firm. The firm supplies all the liquidity, sends the prices, and the code often is a closed source one. The permissionless propAMM Yield Basis changes this, giving public liquidity access to the benefits of the propAMM and Yield Basis leveraged pool at the same time. The following table shows how the design differs from a propAMM on Solana: For LPs: The pool now charges arbitrageurs according to how much they earn from it, and keeps about two thirds of their profit above the minimum fee. For traders: A trade that moves the pool toward the market price pays a smaller fee when the price gap is small For builders: A policy contract on a Curve pool verifies Pyth Pro reports onchain and sets the swap fee and the price_scale target from them. How it works The price Pyth Pro publishes signed ETH/USD prices once a second. Anyone can send one of these prices to the pool. The pool checks the signature onchain and accepts the price only if it is no more than 12 seconds old and newer than the last one. Arbitrageurs have a reason to send prices: a fresh price lowers their fee. They send the price in the same transaction as their trade. A keeper also sends a price if the pool has had no price or no trade for one hour. The fee For each trade, the pool calculates the trader’s profit at the market price. The pool calls this profit the edge. If the trade moves the pool towards the market price, the fee is: 0.50% if the edge is 0.50% or less 0.50% plus 67.5% of the edge above 0.50%, if the edge is larger. The set fee at most (initial fee will be 1.75%). All other trades pay 1.75%. The discount is largest for a fresh price and is gone after 5 minutes. A small correction pays 0.50% with a fresh price and about 1.1% with a price that is 75 seconds old. Where the pool keeps its liquidity A Curve pool concentrates its liquidity around one price, called price_scale. When the market moves away, the pool moves price_scale toward it. Each move costs the pool part of its profit. Today, the pool moves toward an average of its own past trade prices, which falls behind the market. The new design moves toward the market price. It uses two averages of the market price, over about 80 and 160 minutes, to tell a trend from noise: In a sideways market, the pool stays near the 80-minute average and does not follow short spikes. In a trend the pool moves towards the current market price. Each move is at most 0.50% per block, and the pool moves only if its profit can pay for the move. Results The full method and data are in the forum post Oracle reports for YieldBasis pools. The simulator replays Binance ETH trades for every 12-second Ethereum block, with the historical Pyth prices. In each block, the simulated arbitrageur picks the Pyth price that gives it the most profit. The simulator reproduces the live pool The new design charges less per trade and attracts almost three times the volume. Its price stays close to the market, so it needs smaller moves and one quarter of the donations. Donations are borrowing interest that Yield Basis adds back to the pool to pay for those moves. The result does not depend on one exact setting. Around the chosen settings, 44 of 49 nearby settings complete the 18 months at 7.4% to 9.9% a year. Where the new design did worse In August 2026, the price of ETH appreciated by 30% in a few days. In the simulation, the new design’s price_scale fell up to 12.4% behind the market and stayed at least 5% behind for about 11 days. The current settings fell up to 6.3% behind. The new position lost 2.5 percentage points from its 13 august peak, passed that peak again on 2 September, and still finished the period ahead. Limits We chose the settings on the same 18 months that we reported. The live WETH pool is the first test on new data. The simulations had no ordinary trades and no liquidations, only arbitrage swaps. Live results will differ. The price accepts prices up to 12 seconds old, and an arbitrageur can pick among them. This can lower the fee, but only on trades towards that price, and never below 0.50%. A price cannot set the trade price or block withdrawals. We chose Pyth’s one-second channel to limit this choice. Who controls it The Yield Basis DAO owns the policy. The Curve emergency DAO can switch it off in an emergency. The Curve pool contract does not change. Curve DAO vote 1508 attaches the policy to the WETH pool and sets the pool’s reserved profit fraction. Yield Basis vote 60 sets the LevAMM fee (1.5%, today 1.3%) and the donation rate (about 1.2% of pool value a year, today about 5%). The update also closes a route that allows a trader to deposit and withdraw simultaneously extracting value from the pool without paying proper fees. We will publish the details after all pools have the fix. What this means for Curve and for DeFi PropAMMs showed that a pool with the market price loses less to arbitrageurs. They kept these profits inside a few trading firms. The permissionless propAMM introduces this to public pools where anyone can fund, and anyone can update the AMM. Other teams are working on the same problem: @metricxyz introduced permissionless propAMMs and provided us with support for designing the latest updates to our AMM Auction designs such as CoW AMM and Angstrom sell the right to rebalance and pay the proceeds to LPs. The Yield Basis design applies the market price to a volatile pair with leveraged public liquidity. For Curve, arbitrageurs who trade against Yield Basis pools also exchange crvUSD in Curve’s stablecoin pools. We estimate that crvUSD StableSwap volume from Yield Basis arbitrage increases about three times if every Yield Basis pool uses a similar policy. What comes next WETH propAMM upgrade. We’ll watch the flow and make any necessary adjustments where needed based on live data from the pool. cbBTC, WBTC, and tBTC upgrades. Bitcoin pools will be voted in after the deployment of the WETH pool through new votes. A higher amplification parameter (A). Early simulations show higher returns at a higher A. We will publish a separate note before any change. Lower fees for ordinary trades. We are working with block builders, solvers, and aggregators on a way to recognize ordinary trades so that they can pay much lower fees. (If you are a block builder, solver or an aggregator do please contact us. Our DMs are open) Since 2018, public AMM pools have set their fees without the market price. Yield Basis pools now set each fee with it. Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. All performance figures, APR estimates, and comparisons are based on historical simulations and backtesting, not guaranteed future results. Actual performance may differ materially due to market conditions, trading activity, and implementation factors. The proposed upgrades remain subject to governance approval and successful deployment. DeFi involves risks, including smart contract, market, liquidity, and oracle-related risks. Always do your own research.

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