Proposal to Add ysyBOLD Market to FiRM
Summary
This proposal seeks to onboard ysyBOLD, the yield-bearing version of Yearn’s yBOLD product, as collateral on FiRM.
The market presents a business opportunity for Inverse: users can leverage ysyBOLD when its net yield exceeds their all-in FiRM borrowing cost, while Inverse earns revenue from the Yearn partnership as the market grows. The Liquity team has stated that it will allocate 5,000 USDC over two months to borrower incentives, enabled by Merkl’s onboarding of FiRM, which could further improve borrower economics.
Background
BOLD is the stablecoin of Liquity V2. It is fully on-chain, overcollateralized exclusively by WETH, wstETH and rETH, directly redeemable for its underlying collateral, and Liquity V2’s core contracts are immutable and non-upgradeable.
BOLD deposited into Liquity Stability Pools earns 75% of the interest paid by borrowers in the corresponding market, as well as gains from liquidations. When a liquidation occurs, Stability Pool BOLD is used to repay the liquidated debt and depositors receive the collateral at a discount. This creates a sustainable source of yield driven primarily by actual borrowing activity rather than token emissions.
Yearn’s yBOLD product automates this process by allocating BOLD between Liquity’s WETH, wstETH, and rETH Stability Pools and managing the liquidation collateral received by the strategies. yBOLD itself is designed to remain at 1 BOLD per share, with generated profits instead passed to ysyBOLD, which accrues the yield.
Latest yBOLD figures from Stable Yields:
- 5.84% 30-day APY
- 7.37% 90-day APY
- 12.06% current APY
- ~$6.7m TVL
BOLD itself currently has approximately 36.55m BOLD in total token supply.
Figures checked on Sep 29, 2026. APYs are annualized returns over different lookback periods and exclude the planned Liquity borrower incentives.
Business Case
1. Strong expected borrow demand
Users can deposit ysyBOLD, borrow DOLA and use ALE to increase their exposure when its net yield exceeds their all-in borrowing cost.
Stable Yields reports a current APY of 12.06%. Borrower economics depend on the yield achieved relative to the DBR price paid to fund the loan, plus swap costs and any dilution of yield as deposits grow. Historical returns do not guarantee a positive borrowing spread.
The underlying source of yBOLD yield is Liquity borrowing revenue and liquidation gains. As long as there is meaningful BOLD debt and Stability Pool utilization, there is a structural source of yield for the strategy. The planned Liquity borrower incentives would supplement this yield; demand should also be assessed without them and after the two-month campaign ends.
2. Particularly attractive economics for Inverse
Under our partnership agreement with Yearn, Yearn takes a 10% fee on generated yield, with 50% of that fee shared with Inverse for partnership-attributable deposits.
Inverse therefore effectively receives 5% of the gross yield generated by partnered deposits.
A successful ysyBOLD market consequently creates two revenue streams for Inverse:
- Increased FiRM borrowing and DBR demand.
- A direct share of the fees generated from the growing ysyBOLD position.
Leveraged positions amplify both. As users loop ysyBOLD, they increase both the amount of DOLA borrowed from FiRM and the amount of capital generating fees through Yearn.
3. High-quality underlying stablecoin
The stablecoin has no RWA, centralized stablecoin or custodian exposure. Its collateral is restricted to WETH, wstETH and rETH, and the core Liquity V2 protocol cannot be upgraded or have new collateral types introduced through governance. BOLD can also be directly redeemed against the underlying collateral through Liquity’s native redemption mechanism.
This gives BOLD a fundamentally different risk profile from many of the stablecoins currently used throughout DeFi and provides FiRM with additional collateral diversification.
4. Strategic alignment with Yearn
This market strengthens the existing Yearn partnership by positioning FiRM as a leveraged venue for ysyBOLD, giving both protocols an incentive to grow the integration.
5. Liquity borrowing incentives via Merkl
Merkl has onboarded FiRM, enabling borrowing incentives to be distributed to eligible FiRM borrowers. The Liquity team has stated that it will allocate a total of 5,000 USDC over two months to borrower incentives for the proposed ysyBOLD market through this integration. This support could reduce borrowers’ effective costs and encourage market adoption.
Incentive returns depend on eligible borrowing during the campaign and are additional to the underlying Yearn yields quoted above.
Risk Considerations
The primary additional risk relative to holding BOLD directly comes from the yBOLD strategy layer.
When Liquity Stability Pool deposits participate in a liquidation, BOLD is exchanged for WETH, wstETH or rETH collateral. Yearn subsequently auctions that collateral back into BOLD. If the collateral falls sufficiently in value before it can be converted, the strategy can realize a loss.
In this scenario, yBOLD can fall below its targeted 1:1 exchange rate with BOLD. Yearn’s Accountant is designed so that future profits are first used to restore yBOLD back towards 1 BOLD before further profits are distributed to ysyBOLD.
Yearn has also developed an OnLossDepositLimit mechanism designed to prevent new yBOLD deposits while its price per share is below 1, preventing new depositors from entering at a discount and capturing the subsequent recovery.
Other risks include the Yearn smart contracts, keeper and auction infrastructure, Liquity V2 itself, and the liquidity available to exit BOLD during stressed market conditions.
Full RWG risk assessment from the perspective of adding as collateral to FiRM is pending.
Parameters
TBC