Analyzing Baseline (YES): The new king of Ponzi?

Original | Odaily Planet Daily

Author | Azuma

Sentiment surrounding YES, an emerging token in the Blast ecosystem, is heating up rapidly.

Although it is less than 48 hours since the creation of the token, it relies on eye-catching narratives such as “only rises but not falls”, “cyclical leverage” and the “magical” aura of the former Olympus DAO developer, coupled with a sufficiently eye-catching opening performance. , YES and the Baseline behind it have become the most watched projects in the Blast ecosystem.

In the past day, you can see a large number of well-known KOLs discussing the mechanism design of YES on social media, such as NFT whale Machi, CEHV partner Adam Cochran, Yearn core developer banteg, etc.

So, what new gameplay does YES bring? Is the so-called “only rising but not falling” just a gimmick or does it really have any mechanism? Let us break it down one by one in the following article.

Before the article begins, we must first clarify the basic positioning of YES and Baseline. From a positioning perspective, Baseline is an automated liquidity management protocol built on Uniswap V3, while YES is the first token issued based on Baseline.

To put it simply, Baseline is a protocol. The mechanism design we discuss all revolves around Baseline. YES is a token (but not the governance token of Baseline). The price changes we will discuss later are all based on YES. .

Only rises but not falls? It does not actually refer to the market price

Based on the official documentation of Baseline, ** there is indeed a price standard of “only rising but not falling” in the protocol, but it does not refer to the market price that users are directly exposed to, but refers to the protocol’s ability to use its own liquidity to The lowest price that absorbs all potential selling pressure - Baseline calls this price “Baseline Value”, or BLV for short. **

Taking the current price performance of YES as an example, its market price has been experiencing large fluctuations in the dozens of hours since its creation, and is temporarily reported at 0.001747 WETH, but the “base value” (BLV) has been maintaining its rise. The trend is temporarily reported at 0.001160 WETH. There is actually a certain price gap between the two.

So, how does BLV get its value? Where does the own liquidity available to the protocol come from?

In Baseline’s design, **when tokens based on the protocol are issued, Baseline’s market-making strategy will create three consecutive market-making ranges in Uniswap V3, and the prices from low to high are the “floor price ranges” (base position), “anchor position” (anchor position) and “price discovery range” (discovery position). **

• The “floor price range” is responsible for concentrating reserve liquidity within a denser price range. **It exists to defend the token price when large-scale selling pressure comes. The lowest price that can be defended in this range is the corresponding The BLV of the token. **
• The “anchoring range” is responsible for distributing reserve liquidity to a relatively wide price range between BLV and market prices. **It exists to provide sufficient liquidity for normal market trading behavior. **
• The “price discovery range” is responsible for distributing new token liquidity to a wide price range starting from the market price. **It exists to promote upward price discovery and allocate new token supply to market. **

To put it simply, the meaning of “floor price range” is to determine BLV, that is, the protocol’s ability to support the value of tokens; the meaning of “anchoring range” is to make users’ normal transactions smoother; and “price discovery range” is to determine the value of new users A place to buy new tokens upon entry.

According to the description of the official document, Baseline’s own liquidity used to consolidate BLV comes from the agreement’s income, and the total income of the agreement comes from three aspects: First, through the handling fee mechanism of the Uniswap V3 pool, from users’ purchases , 1% is taken as income from sales; second, part of the reserve liquidity is deducted when the market making range is re-adjusted through the shift function (see the next paragraph for details); third, income from the built-in lending module (will be mentioned in the next Part). **

As the protocol revenue gradually accumulates, Baseline will continue to invest these revenues into the “lower price range” and “anchor range” for market making, thereby continuously improving the protocol’s ability to withstand selling pressure. At this time, Baseline will re-adjust its three-tier market making range by executing a function called shift when the token price rises to a specific threshold - the “bottom price range” will rise (BLV rises), the “anchor range” and The “price discovery range” will also be increased.

Corresponding to the actual trend of YES in the picture above, we can see that its BLV will gradually rise in a stepwise manner. This is actually the Baseline triggering the shift function and increasing the BLV by adjusting the “lower price range”.

Built-in Lending: The Magic of “Left Foot on Right Foot”

In addition to the underpinning design at the market-making level, another key design of Baseline is the built-in lending module.

**If the innovation of BLV determines the lower limit of Baseline tokens such as YES, built-in lending may have a more direct impact on the upper limit of token prices. **

According to Baseline’s official documentation,** the protocol allows token holders to borrow assets using Baseline tokens as collateral. Because Baseline guarantees the “base value” of each token, the protocol allows holders to borrow with high capital utilization efficiency without setting up a liquidation mechanism. **

Take the YES loan in the figure below as an example. Baseline allows users to lend ETH using YES as collateral; the loan period is in days and can be any number of days; in addition to the user need to pay a daily one-time fee of 0.01095% when opening a loan position (the protocol income mentioned above), there is no need to bear other interest rate costs; the lending position will not face liquidation risk, and if there is a default, only YES as a mortgage asset will be destroyed.

As for what can be done after lending WETH, Baseline even directly wrote in the use case column in the document that tokens (YES) can be purchased again through the loaned WETH to achieve a leverage cycle and expand by improving the efficiency of fund utilization. own position.

Perhaps because there is no need to worry about the risk of the position itself, a large number of users have chosen to implement the above operation mode.** This has also created a large number of buying orders for YES out of thin air, continuously improving its market price performance, and the agreement has also increased YES through accumulated fee income. BLV. **

At this point, the technique of “stepping on the left foot and stepping on the right foot” to reach the sky has begun to take shape.

Has the protocol been hacked?

Regarding Baseline, some of the doubts in the community stem from the fact that the project’s predecessor, Jimbos Protocol, lost 4,048 ETH due to a hacker attack in May last year, when the price was approximately $7.5 million.

Afterwards, although Jimbos Protocol announced that it had cooperated with judicial agencies in an attempt to arrest the attacker and offered a high bounty of approximately US$800,000 to the community, it was still to no avail. The hacker transferred all the stolen money to Tornado in September last year. cash.

It is also true that although Baseline has announced the completion of a third-party security audit by Trust Security, many community members are still skeptical about its security status.

YES Can I still get on the bus?

Judging from the current situation, the FOMO sentiment surrounding YES is quite hot.

Gecko Terminal real-time data shows that YES is currently trading at $6.2385, a 24-hour increase of 76.01%, corresponding to a market value of $99.37 million.

Baseline’s official website shows that YES’s current BLV is temporarily quoted at 0.00116 WETH, which is approximately US$4.1. Based on this calculation, the market price is currently approximately 52% higher than BLV.

Considering Baseline’s hierarchical market-making mechanism, without centralized selling, there will be a certain distance between the “lower price range” and the “price discovery range”, so it is not surprising that the market price has a certain premium compared to BLV.

As for whether we can still enter the market, we will not provide any investment advice. For users who are willing to believe in the quality of Baseline’s new contract and are interested in trying its mechanism, please be sure to pay attention to risk control, DYOR.