A notable development in the cryptocurrency landscape occurred on Thursday with the activation of the fee switch for Yield Basis, a new protocol launched just three months ago by Curve Finance founder Michael Egorov. This move is part of a trend among crypto protocols to provide revenue-sharing opportunities to their investors, a response to growing pressure from the community for tangible benefits beyond mere voting rights tied to governance tokens.
Yield Basis tokenholders received the green light for this initiative during a unanimous vote on Wednesday. Following the launch in September, the protocol has managed to accumulate over 17 Bitcoin—equivalent to approximately $1.6 million based on Friday’s market value—ready for certain users to claim within a four-week span.
In recent months, there has been a noticeable demand for protocols to create value for their tokens, as user interest in decentralizing management has waned. Activity in decentralized autonomous organizations (DAOs) has often fallen short of the required quorum needed for critical votes, highlighting a disconnect between users and the governance model initially envisioned. This has prompted many projects, including prominent names like Uniswap, Aave, and Jito, to pivot toward buybacks and fee switches to enhance token value amid growing disenchantment among investors.
Egorov provided insights into these developments, noting, “It became a little bit safer for US-based projects to do it.” He emphasized the necessity of what he called “closed-loop economics,” whereby protocols engage in fee distribution to stimulate both user interest and token value. Without such a mechanism, he warned, tokens may struggle to maintain a respectable market performance.
Aside from the activation of the fee switch, Yield Basis aims to tackle the persistent issue of impermanent loss, which has historically plagued decentralized exchanges. This phenomenon refers to the financial opportunity lost by liquidity providers when the value of the tokens they deposit fluctuates unfavorably, leading to potential losses compared to simply holding those tokens. Yield Basis intends to mitigate this risk through a leveraged trading strategy within Curve’s Bitcoin-crvUSD pool. By locking their Yield Basis tokens, designated YB holders can participate in reporting revenue, thus bypassing the negatives associated with impermanent loss while still earning trading fees.
The protocol has also attracted significant interest, seeing more than $130 million in Bitcoin investments as users look to capitalize on the dual benefits of fee revenue and reduced risk.
Nevertheless, the surge in fee distribution and revenue-sharing strategies has not escaped scrutiny. Critics have pointed out flaws in many existing buyback programs, describing them as “broken” and highlighting that they often misallocate funds—overspending during price highs while underfunding during downturns. Reports from various sources have suggested that such initiatives can fail to significantly impact token prices and may divert resources from genuine growth activities.
In a contrasting viewpoint, Egorov defended the rationale behind revenue-sharing, arguing that reinvestment in growth often takes the form of incentives tied to token utilization. He stressed that for token incentives to be effective, the associated tokens must have intrinsic value. “To close the loop, you must do some form of fee distribution if you want to use token incentives at all,” he asserted.
As Yield Basis continues to evolve, it has plans to broaden its scope beyond Bitcoin, with Ethereum expected to be the next addition. This initiative highlights a developing narrative in the crypto world, where engagement and revenue-sharing increasingly govern investor satisfaction and protocol viability.
