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Risk disclaimer

Leveraged liquidity provision on YieldBasis has technology, counterparty, economic, asset, governance, and regulatory risks. The sections below describe each risk. For some risks, a "How you see it" line names the signal to watch on Analytics. Research and understand these risks before you deposit or use the protocol.

Audits and documentation​

Statemind, ChainSecurity, Quantstamp, MixBytes, Electisec, and Pashov audited YieldBasis smart contracts. Firepan did an AI-assisted review of the FeeDistributor, and Sherlock hosted a public security contest. Audits lists the reports. Check each report for the status of its findings. A published report does not mean that the team fixed every finding.

Technology risk​

Smart contract risk​

No audit removes all risk. A bug, a vulnerability, or a new attack vector can cause loss of funds. Review the contracts and the audit reports before you deposit.

These properties of the contracts affect that risk:

  • Core YB contracts are immutable. Nobody can upgrade them.
  • Parameter updates (fees, allocations) go through DAO proposals. veYB holders set gauge weights with gauge votes.
  • Pool policies are separate contracts that the Curve pool calls. After a pool's one-time initialization, only a Curve DAO vote can attach, replace, or remove its policy. For who controls each policy, read Pool policies in Roles and permissions. For what a policy can do, read Pool policy risks.
  • LTMigrator moves positions from legacy markets to current markets.

Oracle risk and price-feed dependency​

A composite oracle prices the liquidity provider (LP) tokens and holds leverage. It depends on these parts and checks:

  • Curve Cryptoswap LP oracle: prices the LP token from three inputs: the pool's virtual_price, its price_scale (the pool's internal price), and the crvUSD aggregator price.
  • crvUSD price aggregator: an external Curve contract, outside YieldBasis control, that averages crvUSD prices from several pools (EMA).
  • Bound check: at Factory init and on aggregator updates, the crvUSD oracle price must be within ($0.90, $1.10), exclusive on both ends. Routine deposit, withdraw, and exchange operations do not check it again.

For how these parts combine into one price, read Oracle design.

The LP oracle has no staleness check. A flash loan cannot move it far within one block, because price_scale moves at most one limited step per block. The oracle price lags the market by design, and this lag is one cause of the Temporary Redemption Discount (TRD). TRD is the signed gap between Redemption Value (preview_withdraw) and Fundamental Value (pricePerShare()). A negative TRD means that a withdrawal now returns less.

On a pool that runs the oracle-report policy (YBOraclizedPolicy), signed Pyth Pro (Pyth Lazer) price reports also steer price_scale. For what can go wrong with those reports, read Pool policy risks. If the aggregator or the pool state is wrong, the protocol can value positions wrongly. In that case, the protocol can also drift from the target leverage or execute trades at a poor price.

Pool policy risks​

A pool policy is a contract that the Curve pool calls on each operation. It can set the pool's swap fee, its price_scale target, or both. To see which policy a pool runs, call POLICY() on the pool or read the table in Contract addresses. For how each policy works, read Pool policies.

A pool that runs YBTwocryptoPolicy keeps its own fee curve. That policy sets only the price_scale target, from the pool's own prices. It reads no external price and has no owner, no setters, and no kill switch. As a result, only a Curve DAO vote can replace or remove it.

The rest of this section applies only to a pool that runs the oracle-report policy, YBOraclizedPolicy. On such a pool, you also trust Pyth and the YieldBasis DAO (YB DAO) for prices.

These failures and effects can change your position:

  • Wrong price report. The policy accepts any price report that the Pyth verifier accepts. If Pyth signs a wrong price, or a Pyth signing key is compromised, a trader can deliver that price. A wrong price report can lower the fee on swaps against the pool and steer price_scale by at most one step per block.
  • Verifier replacement. The YB DAO can replace the verifier with any contract.
  • Position value. Price reports set swap fees and steer the price_scale target within step and clamp limits. LEVAMM, the market's leveraged automated market maker (AMM), uses an LP oracle that reads price_scale. So a price report slowly changes the value that LEVAMM assigns to your position.
  • Fee income. The policy also changes pool fee income, so yb-LP returns differ from those under the pool's own fee curve.
  • Policy revert. A policy revert blocks swaps, deposits, and normal withdrawals. If the policy call fails, emergency_withdraw still works only if at least 500,000 gas remains before the call. Supply enough gas, or the withdrawal also reverts.
  • Kill or revive. A kill or a revive changes swap fees at once.
  • crvUSD depeg. The policy counts 1 crvUSD as $1. A crvUSD depeg makes the policy price swaps wrongly, and a price report then steers price_scale toward the USD price instead of the crvUSD price.
  • LT deviation check. A deposit reverts with "LT deviation" if its added debt does not match the LEVAMM debt-to-collateral ratio within ratio_tolerance, a policy setting.

The YB DAO can change the policy settings only within limits in the code. For example, the fallback fee can be up to 10%, the step cap up to 0.60%, the report lifetime up to 4 hours, and ratio_tolerance up to 10 basis points (bp).

For every setting limit, read Governance in Dev: Pool policy. For the step and clamp limits on price_scale, read price_scale target in Pool policies. For the LT deviation check and its exemptions, read LT deviation check in Pool policies. For each failure and what it changes for you, read What can go wrong in Pool policies.

Leverage mechanism and rebalancing risk​

Arbitrageurs hold the 2× leverage target. They trade against LEVAMM quotes for profit, and those trades restore the target. The mechanism depends on their incentives:

  • Normal conditions: arbitrageurs execute rebalancing trades for profit, holding debt near 50% of the position value (2× leverage).
  • Extreme volatility / network congestion: rebalancing can be late, because high gas costs can make small arbitrage trades unprofitable. The leverage can then drift from its target for longer.
  • crvUSD depeg: if crvUSD deviates far from $1.00, the effective leverage ratio can deviate from the target even when arbitrageurs are active.

Arbitrage does not restore the target at once. Its speed depends on how arbitrageurs respond to gas costs and volatility at the time. For how the trades restore the target, read Compounding leverage.

Spread fluctuations and withdrawal variability​

A withdrawal executes against the live balances of the Curve Cryptoswap pool. Other trades change those balances, so the amount can change between blocks:

  • The amount received can differ between a pre-trade quote and execution, depending on other activity in the block.
  • During rapid price movement, TRD can widen.
  • Review the transaction preview (preview_withdraw) and set a realistic min_assets to protect against unfavorable execution.
  • TRD can last from hours to weeks. If you withdraw while TRD is open, the discount becomes a realized loss. For when to wait, read Fundamental Value, Redemption Value, and TRD.

How you see it: the TRD column of the markets table on Analytics is below 0%.

Immutability and irreversibility of transactions​

After onchain confirmation, nobody can modify, reverse, or delete a transaction. If you send funds to a wrong address, sign for the wrong amount, or route funds to a malicious contract, recovery is usually impossible. Verify transaction details, use trusted wallets, and check contract addresses against Contract addresses before you confirm.

Counterparty risk​

Access control​

YieldBasis smart contracts are noncustodial, and their immutability limits protective action in emergencies. In a killed market, you can exit only through emergency_withdraw, and you might need to repay part of the debt in crvUSD. For the kill switches and the exit, read Emergency procedures.

The YB DAO, a DAO of veYB holders, governs the protocol. Any active veYB lock can create a proposal. A proposal passes only with the participation, support, and duration that the voting plugin sets. Proposals gives the thresholds and how to check them. The YB DAO controls new system contracts and parameter changes. Before you deposit, accept that veYB holders make these decisions collectively.

Emergency procedures​

YieldBasis has no protocol-wide pause. Each market's LT (the market's vault contract) has one kill switch, and each YBOraclizedPolicy has one. emergency_withdraw stays available with both. For who holds each switch, read Roles and permissions.

The two kill switches and the Curve pool controls work as follows:

  • Market kill switch: the Factory admin or the Factory emergency admin (the Curve Emergency DAO, a Safe multisig) can call set_killed on a market's LT. A killed market blocks deposits and normal withdrawals.

    emergency_withdraw removes liquidity in balanced form. If the crvUSD you receive is less than your share of the debt, you must pay the difference in crvUSD from your wallet. On markets 7 to 10, emergency_withdraw does not depend on the oracle in a killed market or when the LEVAMM oracle read fails.

  • Policy kill switch: the YB DAO or the Curve Emergency DAO can kill YBOraclizedPolicy. For what a killed policy changes, read What can go wrong in Pool policies.

  • Curve pool: the Twocrypto v3 pool code of markets 7 to 10 has no pause function. The Curve Emergency DAO can change some pool fee and rebalancing parameters. Changes to the pool can affect swaps and arbitrage.

Dependency on Curve Finance infrastructure​

YieldBasis builds on Curve Finance. Curve Cryptoswap pools provide the underlying liquidity and LP tokens, crvUSD is the debt asset, and LP pricing and refueling rely on Curve contracts. Refueling is the donation of crvUSD borrower interest to the Curve pool to fund rebalancing.

YieldBasis inherits the risks of this dependency. Curve parameter changes, contract upgrades, or failures can affect YieldBasis markets and users directly. YieldBasis governance has no direct control over them.

Economic risk​

Unstaked LPs​

Unstaked LPs face these risks:

  • PPS drag: net rebalance losses, after the refueling subsidy from borrower interest, can exceed trading-fee income over a sustained period. As a result, Fundamental Value, the price per share (PPS), grows more slowly or stops. The drag is the part of the rebalancing cost that donations do not cover, not the borrower interest itself. Recovery requires later fees to be larger than later drag.

    How you see it: on Analytics, the FUNDAMENTAL PPS line of the PLAIN prices charts is flat or falling. For how PPS drag differs from TRD, read Fundamental Value, Redemption Value, and TRD.

  • TRD on withdrawal: arbitrage reduces TRD over time, but the time varies.

Borrow rate and pooled debt​

Each market borrows crvUSD as one pooled debt inside LEVAMM, so you have no personal debt position and no personal liquidation price. Your share of the debt changes with LEVAMM rebalancing, not with your own actions. For the costs of the position, read What you pay in Compounding leverage.

The pooled debt affects you in these ways:

  • Borrow rate. The YB DAO sets the rate per market, up to a contract limit of 100% per year. To check it, call rate() on the LEVAMM (per second, 1e18 is 100%).
  • Where the interest goes. LT donates the interest to the Curve pool to support rebalancing. It does not return to you directly.
  • Rate changes. A higher rate costs the position more interest. If the donation does not offset the rebalancing cost, Fundamental Value grows more slowly.
  • Pooled losses. All holders of the market's yb-LP take losses of the pooled position in proportion to value.

Staked LPs​

Staked LPs face these risks:

  • Watermark shortfall: the main staked-specific exposure. A staked position has a watermark, the level that its value must regain after losses. If rebalance losses outrun fees, the staked side drops below its watermark, and recovery depends on future fee income. How you see it: the PLAIN PPS VS WATERMARK PPS chart on the Analytics market detail page shows the gap. For how recovery works, read Watermark and recovery.
  • Forfeited Fundamental Value growth: staked positions do not earn the Fundamental Value growth of unstaked yb-LP. Their only economic return is YB emissions (valued at YB/USD).
  • YB price risk: YB emissions are the compensation for watermark exposure and forfeited PPS growth. If the YB price is low relative to the Fundamental yield that stakers give up, emissions do not compensate enough.
  • Gauge weight risk: veYB votes allocate emissions per gauge. If your market's gauge weight is low, emissions to stakers in that market are low.

Asset risk​

BTC and ETH wrapper token risk​

YieldBasis markets use cbBTC, WBTC, tBTC, and WETH. Each is a claim on an asset that a custodian or bridge holds, with its own trust assumptions:

  • Wrapped BTC tokens are not native Bitcoin. They depend on the solvency and operational integrity of issuers or bridge protocols (custodian risk for cbBTC and WBTC, bridge risk for tBTC).
  • A wrapped token can lose its peg to the underlying (custodian insolvency, bridge exploit, regulatory action, technical failure). Liquidity providers in that market then take the full effect.
  • Each market stands alone. A depeg in one wrapped variant does not directly affect LPs in other markets.

Evaluate the trust model of the wrapper that you choose before you deposit.

crvUSD stability and peg risk​

YieldBasis borrows crvUSD through a dedicated collateralized debt position (CDP) line to reach 2× leverage, and the mechanism assumes that crvUSD trades near $1.00:

  • The oracle bound check on crvUSD runs only when governance sets the aggregator (see Oracle risk). For the band and its limits, read Safety band on the crvUSD aggregator in Oracle design.
  • Short-term crvUSD volatility inside the band can still affect effective leverage ratios and position values.
  • Large depeg events (deep under- or over-peg) distort the effective leverage and the value of positions.
  • Permanent depeg from systemic issues with crvUSD collateral or redemption causes losses. YieldBasis debt is in crvUSD, so the losses follow the size and direction of the depeg.

Market dynamics and liquidity risks​

Market conditions add these risks:

  • Underlying volatility. BTC or ETH drives the value of your position, and cryptoasset prices often move fast and far. A yb-LP position keeps full price exposure to BTC or ETH, so you carry the full downside as well as the upside.
  • Flash crashes and rapid moves. Sudden market events can produce large gains or losses.
  • Rebalancing efficiency depends on liquidity. In thin liquidity or extreme stress, arbitrage trades can be less efficient, and the leverage can drift from its target for longer.

Flash loan dependency​

Arbitrageurs rebalance through VirtualPool, which borrows from a flash lender (configured on Factory.flash) so that they need no upfront capital. A problem with flash loans has these effects:

  • If flash-loan infrastructure is unavailable or has technical issues, the protocol rebalances more slowly.
  • If flash-loan fees rise, rebalancing arbitrage becomes less profitable. The leverage can then drift further before arbitrageurs respond.
  • Any disruption of the flash lender delays the return to target leverage during volatile conditions.

Governance risk​

Governance adds these risks:

  • The YB DAO can change critical parameters through proposals that meet the plugin's participation and support thresholds. These parameters include the minimum admin fee, gauge approvals and gauge kills, Factory allocations, borrow rates, LEVAMM fees, and the Hybrid Vault stablecoin fraction. veYB holders set gauge weights with gauge votes.
  • veYB voting weight concentration at launch creates a vote-centralization risk until distribution matures.
  • The emergency admin can kill individual markets, as a fast path for broken oracles or insolvency that cannot wait for a DAO vote. For the kill switches, read Emergency procedures.

Regulatory risk​

Standard decentralized finance (DeFi) regulatory uncertainty applies. You are responsible for understanding the legal and tax status of yb-LP positions, veYB, and YB emissions in your jurisdiction.

Disclaimer​

The information provided within this document does not constitute financial, legal, or tax advice personalised to individual circumstances. It is for informational purposes only and should not be relied upon as a substitute for professional advice. The protocol is provided "as is" without warranties of any kind, and users engage with YieldBasis entirely at their own risk.

Users are strongly encouraged to seek advice from qualified professionals regarding financial, legal, and tax matters before engaging with YieldBasis. Past performance is not indicative of future results, and users may lose some or all of deposited capital. Only deposit funds you can afford to lose, and carefully consider your risk tolerance, financial situation, and investment objectives before participating in leveraged liquidity provision.