Basis Cash (symbol: BAC) is a censorship-resistant and fairly distributed implementation of the Basis Protocol, a new monetary system and stablecoin project which decided to shut down in 2018 after raising $133 million due to concerns that their bonds and share tokens would be deemed securities by United States regulators.
The Basis Cash protocol aims to revive the original vision of basis.io, initially released as a lightweight implementation on the Ethereum blockchain.
Basis Cash (BAC) Overview
Basis Cash can be desribed as a fairly distributed and censorship resistant stablecoin with an algorithmic central bank.
Basis Cash (BAC) is pegged to the U.S. dollar. One BAC should be equal to the cryptocurrency equivalent of one USD. Basis Cash’s price will be managed by two other crypto assets: Basis Bonds and Basis Shares.
At the end of November 2020, 50,000 BAC will be distributed over a five-day period (10,000 per day) to users that deposit any of these five stablecoins into its smart contract: DAI, yCRV, USDT, SUSD and USDC. Depositors can’t drop in more than 20,000 stablecoins from any one account. The daily reward will be distributed pro-rata and users can take their coins back out at any time.
In an interview with CoinDesk, one of the anonymous developers of Basis Cash, Rick Sanchez, stated:
“In the long term, we look forward to seeing Basis Cash be used widely as a base layer primitive such that there is organic demand for the asset in many DeFi and commercial settings."
How It Works
If the price of BAC should drop below a dollar, the protocol will issue Basis Bonds. Those Basis Bonds can be bought for one BAC. They can also be redeemed for one new BAC when the price is above a dollar.
If BAC were to drop to $0.97, a user could buy a bunch of BAC at that discounted price and redeem them for the bonds (which burn the BAC). That reduces the supply and should bring it back in line with the peg.
When BAC goes over $1.00, new BAC gets issued. The protocol first lets bondholders redeem them. An example of this would be someone who bought bonds at $0.97 they should get at least a 3% profit and the rest of the fresh BAC goes to holders of Basis Cash Shares.
To get the new BAC (the seignorage), BAS holders have to staking their shares in the Boardroom, another smart contract.
Basis Cash Founders
The founders of the Basis Cash protocol are anonymous developers (anons) who are known as DeFi Morty and Rick Sanchez. The main characters of the popular cartoon Rick and Morty for adults by Dan Harmon and Justin Roiland.
Total Value Locked
Two days after launch on December 1, 2020, Basis Cash reached a high of $159,500,000 in Total Value Locked (TVL).
BAC - Basis Cash
Basis Cash tokens are designed to be used as a medium of exchange. The built-in stability mechanism expands and contracts their supply, maintaining their peg to the MakerDAO Multi-Collateral Dai token (which roughly trades near the United States dollar).
BAB - Basis Bonds
Basis Bonds are minted and redeemed to incentivize changes in the Basis Cash supply. Bonds are always on sale to Basis Cash holders, although purchases are expected to be made at a price below 1 Basis Cash. At any given time, holders are able to exchange their bonds to Basis Cash tokens in the Basis Cash Treasury. Upon redemption, they are able to convert 1 Basis Bond to 1 Basis Cash, earning them a premium on their previous bond purchases.
Contrary to Basis Bonds of basis.io, bonds in Basis Cash do not have expiration dates. All holders are able to convert their bonds to Basis Cash tokens, as long as the Treasury has a positive BAC balance.
BAS - Basis Shares
Basis Shares loosely represent the value of the Basis Cash network. Increased demand for Basis Cash results in new Basis Cash tokens to be minted and distributed to Basis Share holders, provided that the Treasury is sufficiently full.
Holders of Basis Share tokens can claim a pro-rata share of Basis Cash tokens accumulated to the Boardroom contract.
The Basis Cash Treasury exists to enable bond-to-cash redemptions. Bonds redeemed via the Treasury automatically returns the user an equal number of Basis Cash, provided that: 1) the oracle price of Basis Cash is above 1 DAI, and 2) the Treasury contract has a positive balance of Basis Cash.
Disallowing redemptions when the Basis Cash price is below 1 DAI prevents bond holders from prematurely cutting their losses and creating unnecessary downward pressure on the price of BAC.
The Boardroom allows Basis Share holders to claim excess Basis Cash minted by the protocol. Holders of Basis Shares can stake their Shares to the Boardroom contract, which by doing so, they can claim a pro-rata share of Basis Cash tokens assigned to the Boardroom.
The Basis Cash protocol is designed to guarantee Basis Cash tokens to be exchanged at a value of a single U.S. dollar, with the stabilizer (in-protocol stability mechanism) in charge of matching the supply of Basis Cash to their demand.
Every 24 hours, the time-weighted average of the BAC-DAI exchange rate is read from the Uniswap v2 contract, which is then fed into the Basis Cash protocol to be referenced by its stability mechanism.
The stabilization mechanism is triggered whenever the price of Basis Cash is observed to be above / below (1+ε) DAI, where ε is a parameter that defines the range of price stability for the BAC token. At launch, ε is set to be 0.05.
At any point in time, Basis Bonds can be bought from the protocol in exchange for Basis Cash. Purchase of Bonds are performed at an algorithmically set price. With a Basis Cash oracle price of P DAI, bonds are sold off at a price of P BAC (effective price being P^2 DAI), promising bond holders a premium when redeemed. Purchased bonds can be converted to Basis Cash, insofar as the preconditions are met and the Treasury is not empty.
Bonds can still be purchased even when Basis Cash trades above 1 DAI (P > 1), however this nets the purchaser a loss when redeemed. For example, when 1 BAC = 1.1 DAI, a Bond is sold for 1.1 BAC. Since all Bonds can only be redeemed for 1 Cash, this yields the purchaser a net loss. Thus, bond purchases are only expected to occur when 1 BAC trades below 1 DAI.
If the price of Basis Cash is observed to be higher than (1+ε) DAI, the system mints totalSupply *(oraclePrice-1) number of new Basis Cash tokens. The issued Basis Cash is either deposited to the Treasury or the Boardroom, depending on the Basis Cash balance of the Treasury.
If the Treasury has a balance above 1,000 Basis Cash, then it is logical to assume that either all bonds have been already redeemed, or no bond holder is currently willing to perform a redemption. Either way, this signals that the demand for bond redemption do not exist at this time, and thus the freshly minted Basis Cash is given to the Boardroom contract.
However, if the Treasury has a balance of below 1,000 Basis Cash, then it is assumed that there will be additional demand for bond-to-cash redemption. Therefore, the issued Basis Cash is routed to the Treasury so that Bond holders can exercise redemptions.
Both Basis Shares and Basis Cash does not have any pre-allocations to neither the founding team, nor any external investors. Shares are instead distributed to community members that perform actions beneficial to the network.
Fair, open distribution of the entire token supply is advantageous to the protocol's long-term success, rewarding those with a stake in the network, instead of investors and speculators targeting short-term profits.
Moreover, distributing BAS rewards provides a strong financial incentive for network bootstrapping, boosting adoption via network effects. For example, rewards given to Basis Cash liquidity providers prevent Basis Cash from becoming significantly devalued, something that can be detrimental for the network.
The protocol starts with a Basis Share supply of zero, the entire supply minted purely via community distribution.
Initial distribution of Basis Cash are done to those that deposit DAI (MCD), yCRV, USDT, SUSD, and USDC to the distribution contract. A total of 100,000 Basis Cash tokens are distributed to depositors, with 20,000 Cash tokens distributed per day. Tokens are assigned equally to each stablecoin pools, and the amount of stablecoin deposits are limited to 20,000 tokens per account.
Afterwards, a total of 250,000 Basis Shares are distributed to those that provide liquidity to the BAC-DAI Uniswap v2 pair, where users can deposit BAC and DAI tokens to the distribution contract and earn BAS tokens. Distribution lasts for 1 year, and an equal amount of tokens are distributed per day.
Further distribution of Basis Shares are given to liquidity providers of the BAS-DAI Uniswap v2 pair. A total of 750,000 Basis Shares are distributed, and the amount of daily seigniorage halves every 72 hours.
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