Baseline: An Automated Tokenomics Engine | Indigo & Fully, Baseline | ETHTaipei 2024

hey hey hey hey okay okay it works it works we're good we're good hello everybody um thank you Cindy for the introduction uh thanks for coming um my name is uh fully I'm Indigo uh and we're here to talk about Baseline uh protocol today um okay so Baseline protocol is uh a new kind of like Market making system um that uh we've tried to design uh to democratize liquidity and uh trading on chain uh the main premise behind it uh is that instead of having to work with thirdparty market makers or service providers uh when dealing with your uh token listing and trading um we wanted to create a protocol that allows anyone to deploy a new erc20 uh with liquidity and tokenomics kind of built in from scratch uh so yeah um okay okay so uh what does that mean uh Baseline is a market maker but not everyone you know is very familiar with what market makers do um so market makers uh basically are uh Market participants that trade assets uh buy and sell assets uh and make trading easier for you know different Market participants um what they do is uh if you need to sell or you need to buy a token uh there's always someone on the other side that's willing to make the trade with you for a good price so if you don't have a market maker for your token uh you don't have liquidity uh anytime someone you know spends a small amount of money buying the token or if they sell a small amount of the token uh you see the charts kind of go crazy uh and that's because there's nobody in the middle servicing the trade um so what we're trying to do is we're trying to find uh a more decentralized and permissionless way to facilitate that for everybody okay so um why do we decide to do this uh Market making is actually a very complicated and uh you know like difficult issue that we have to deal with in in crypto today um right now I think uh the biggest problem is with the traditional model um there's a lot of incentive misalignment and a lot of like problems that come with this so uh go going back yeah uh so the first thing is that um market makers uh when you work with a market maker as a token project uh the incentives of the the partners that you're working with aren't necessarily aligned with the incentive of the token holders and the team um in order to make money as a market maker you have to be extractive in the market basically you have to be profitable trading uh if you're not profitable trading as a market maker you're going out of business uh but if you are profitable trading as a market maker then you're taking money out of the markets from other holders or people and you see you know the value of the tokens uh slowly going down and you know liquidity net liqu liquidity that comes in and out uh slowly move out of the market um the second thing about like working with a market maker as a as a firm or a company is that uh you have to trust that they're going to do what they say they do so you know if you're a protocol founder you want to launch a token you work at a deal with one of these firms uh you know you have to you have to hope that um they are going to buy the token and sell the token uh under the predefined terms and for a lot of people who've worked with market makers before uh you know that's not always the case they don't necessarily provide liquidity when they say they will uh and it causes a lot of problems uh yeah and so the the third piece is that uh in order for these liquidity deals to happen under the traditional like model of token economics um you have to give your market makers a large percentage of your initial Supply so you know you mint all the tokens maybe you give 10% of all the tokens to the market makers they go to an exchange they start selling in your tokens um immediately and uh the problem with this is that one entity basically has control over all your tokens uh they decide when they want to sell it when they don't want to sell it they decide when they come you know and buy it back and it gives them a very big Advantage for everyone who's trying to trade your token uh so at the end of the day you have this very imbalanced Market where the guy who owns you know all of the supply is actually incentivized to extract as much value as they can you know providing liquidity in your Market because you know they have to pay for for their offices for their salaries they have to grow their company uh and so you know all of this ends up with what we have today which are you know a lot of tokens with a lot of really bad deals and listings are very expensive and you know things end up kind of trending down only over time as liquidity is kind of leaving the markets yeah so that brings us next to automated market makers so as we do in crypto we generally uh replace old Financial institutions with things that can be automated on our permission lists so in our case for market makers we've created things called automated market makers and you know these uh popular protocols like Unis swap so what these are are very simple market makers that make it permissionless and uh open for anyone to be able to be market makers for tokens they can provide liquidity as they please um there's other systems that we've identified that uh we call automated liquidity systems that are smart contracts built on top of automated market makers these are uh less known but they're uh they're designed to replace the need for traditional market makers in that they can buy and sell tokens uh for for certain protocols or teams um what's what's nice about these automated liquidity systems is uh they don't really have in the incentive alignment problem as they're just programmed to do as they are you know they're just programmed to make fees as they do and uh everyone is they're built to the benefit of the token holders generally they don't have a need to make money pay salaries anything like that um they're also guaranteed to perform the way they're programmed to be um you don't have to worry that like you know they're going to dump on you or whatever uh which you know sometimes is the case um so some some useful properties of these automated liquidity systems are that they're deterministic and that you know exactly what they're going to do uh they're non-extractive so uh they don't have to make money for themselves they can use any fees and revenues that they generate for uh for the benefit of token holders or the protocol itself they're also transparent and auditable so you're not like really worried um you can you can always check on chain uh what the code is doing and they're designed to act as the primary market makers for the tokens to replace the traditional market makers um and last uh I think this is a really important Point actually is they act as guarantees for Market participants so every since everybody knows the rules of the market they're able to uh you as a Trader as a holder or as a a liquidity provider yourself you're able to design your strategies around that which is uh I think very very important and I think many people don't really uh think about this until you kind of see these systems in action so some examples uh that are out there are uh my person personal favorite Olympus range bound stability or RBS RBS is designed to buy and sell uh and Market make the M token on fully on chain and what it does is it keeps the price of mm at within a certain range but it still allows the market to break through this range if uh you know there's enough buy or sell pressure so what it kind of does is just supports the market and what it's trying to do rather than uh keep it at a peg or anything like that another uh good example that many people don't really know about um is White Lotus which has been a big inspiration for us uh so White Lotus was a small project in uh 2023 like in the trough of the bare Market um White Lotus was a system built on top of a concentrated liquidity pool which uh had what it did it concentrated all of the reserves in the in the pool so all the eth into a one certain price so it was designed to be able to absorb the entire circulating Supply as a floor price so if everybody dumped their token all at once they would be guaranteed this floor price no matter what and uh you'll see uh this is like a huge inspiration for us at Baseline and last uh something a bit different is the fraxos or algorithmic market operations these things many people don't really know about but this is how frax maintains their Peg at $1 frax is a stable coin by the way so frax uh what it does it allows these smart contracts to Mint and burn fra into their liquidity pool to maintain the price at $1 at all times um there's also a lot of other systems like this I don't think it's been talked about a lot in crypto but uh that would be like a whole another presentation on its own uh maybe for later yeah uh okay so that leads us to a baseline um so as indigo is saying uh automated liquidity systems uh basically replace market makers with smart contracts that do the bond buying and selling as your token counterparty for you uh and so at Baseline uh we kind of took The Inspirations from a lot of the other designs that we've seen uh and we've Consolidated it into one simplified system that um is built around a Unis swap V3 concentrated liquidity pool so what that means is uh we're trying to do all of the things that we've seen from the previous systems from White Lotus from Olympus RBS from fraxos uh and we do that all in these concentrated liquidity positions um directly on chain that you can see and we'll go into a couple of those uh mechanics in a little bit yeah um okay so the three main components of Baseline that I think are important to understand uh one is called the Baseline value um the first one yeah so the first one is Baseline value uh the Baseline value is uh the minimum price at which any Baseline token can be sold uh forever and this is always guaranteed the liquidity to buy back that token will exist in the Unis swap pool it's immutable and you can't touch it um so no one can take it out or move it uh we can't do anything with it even you know as like the team or the devs um so it's there forever and it's uh it's enforced through the market making system and so what the market making system does is it takes a concentrated position in Unis swap um and it looks at you know okay can this position if every single token in circulation today was sold at the same time um Can this position still buy back all of those tokens and have a little bit of e left over and we do calculations in the smart contract to move this position around so that this is always the case so no matter what if everyone sells everything tomorrow um the Baseline value is the price that the last token will be sold at uh the the you know the first token will probably be sold at the market price and then as the price goes down and down and down and down you see the minimum price is the Baseline value and that's where it's at one more thing um the Baseline value is also designed to only go up so whatever the price is at initially is that we actually calculate on chain such that all the fees and everything that we generate make this Baseline value to either stay the same or increase over time uh it it will never go down um do you want to talk about the credit facility sure uh so the credit facility is designed so since every token has a blv behind it such that uh in our in commonly it's just a value of eth that every token is backed by um you normally wouldn't want to sell your token to be able to access that floor PR uh that blv so what we allow you to do is actually borrow this blv at any time and what we do is we actually allow you to do it in a non- liquidable fixed rate and fixed term loan so you can take this at any time and uh with no Oracle with no oracles by way or non- liquidable lending yes it's pretty cool um so yeah you can take this uh amount or or you can take this blv at any time and what what's nice about is that uh normally when you hold a token you usually have to like uh you're either thinking of buying or selling and sometimes you can like stake it or do something like that uh this gives a native utility to the Token as an alternative um and I'll show you later like the effect of this on like the price it's very interesting um but what a lot of people do is they take the they they'll buy the token and then they collateralize it and borrow the blv and they uh often they Loop it back in so they take the blv and they buy back the token to get leverage exposure to the uh to the price increases um but they can also uh take the BV C and uh stake it into like a lending protocol or you can provide liquidity on a separate Market you could do whatever you want with it um so it just gives a lot of native utility to the Token yeah so I just want to add a a little detail here um so one of the reasons why the um why the lending can be uh non- liquidable and Oracle uh is because um the the protocol basically has the guarantee of the blv uh so when you're taking the minimum value of it uh what where the money is actually coming from for your loan is coming from the the Unis swap pool directly so so the protocol normally has this eth sitting in the pool that's reserved to buy back your token at that price as soon as you collateralize it with the protocol it realizes that it doesn't need that eth to sit there because it now owns the token that you would have to sell because you because the protocol has the token it can give you the eth ahead of time by pulling it directly from the Unis swap pool and letting it you use it for whatever you want so uh as indigo is saying a lot of people are trying you know this mechanism in in different ways some people uh just go gig Along on you know Baseline tokens by borrowing the the the eth of the pool and then they put it back in and uh people have called this looping so you just kind of borrow byy borrow byy borrow by borrow byy and it depends on you know the difference of the current price to the price that you're getting the loan how many times you can do this efficiently but it's really cool to see that you know at launch from day one uh when we made when we made a token uh people are able to borrow and leverage directly inside the Unis swap pool you don't need a per integration you don't need anything and you already get you know a lot of exposure what uh it's also like guaranteed to be solvent because there's no liquidations uh we just default the loans if they don't pay back and everything actually stays solvent in the end yeah and uh and lastly like all the interest and everything that gets uh paid to this Credit Credit facility goes to increasing the BV for everybody cool okay um yeah I mean uh okay so both of these mechanics work uh in different ways to ACR value to the the the Baseline value uh and I guess the reason why um we even kind of like went down this path is because uh you know Indigo and I are both like notoriously not great Traders um we we really like to you know believe in the projects that we in invest in and and buy and uh the way you know crypto work today in my mind is it really incentivizes and rewards impatience um and profit taking because uh the structure of your your crypto tokens the markets are very thin in terms of liquidity so the first people that capture it actually take all the upside but that's not very good in my mind if you know we have uh you know a community of people who want to believe in the things that they're buying and holding and so the mechanic um to kind of reward that is to take you know the the the surpluses and fees that are happening in these pools and moving them into a minimum value so that people who are holders people who are patient people who don't want to just like trade their token for quick profits um they have other Alternatives and value cruel mechanisms built directly into the tokenomics so you're not kind of you know trying to fight and figure out where your entries are and where your exits are and time everything perfectly um so this is one way that we've try to find how to you know give more advantages to passive holding and patience as opposed to just you know active trading uh and and balance out the Dynamics a little bit there sure okay so uh Baseline protocol so uh we're we're kind of associated with two things um one is uh the protocol which is called Baseline uh but uh we launched a token on this protocol uh called yes so uh yes money 420 uh is the Twitter handle um there's uh there's been a lot of uh hype around it on blast actually um so we launched on March 3rd um and uh this is the first of many uh tokens that we plan on launching on Baseline um we think that you know there's no perfect or optimal liquidity structure or Market making strategy different tokens will want different structures uh so um yes was is the first of many to come uh it's right now the most liquid pair on blast uh something really cool is we did $300 million of volume in the first 48 Hours of launch uh we've reached over half a billion dollars of volume on blast uh we're over 30% of all total uh volume traded on on the L2 right now um so it's been it's been a pretty crazy ride yeah all right uh I would normally not put a price chart on a technical presentation but uh but it's pretty interesting so I just wanted to show you guys um so we didn't uh as we designed the system uh we worked on it for like almost a year and we tried to explain to people but nobody really believed what we were saying was possible or that it was uh or they didn't really think it was significant at all uh so rather than try to like keep explaining people uh to people we're like we'd rather just launch a token make a cool meme or like a funny meme and then just try like let's just show people what what it can do right so this is why I show it up here so you can see the green price right here let me move my laptop uh you can see the green line right here this is actually the BV and uh I know everyone when I said uh BV only stays or goes up no one beli me but this is actually what it's doing um uh so some interesting things as you can see um one interesting thing is that uh because we have this alternative to buying and selling we you can like borrow and uh do something else with it there's actually a lot uh there's you can't really like use technical analysis or something on this chart it just looks so weird and no one I don't think think I've ever seen anything like it before so uh you can see at the front uh holders would rather actually borrow than sell and this is why we get these humongous green uh movements up here because everyone's just very degenerate especially if you don't liquidate their loans so this that's what's happening right here um uh and then what's interesting is that people as they loop as they borrow and then Reby the token you're actually getting multiples of exposure on your BV increase so if you Loop however many times and you get like 3x exposure uh the blv increases 2% you're actually going to get 6% on your blv increase aw hold on let me let me jump in real quick um so uh for context one of the coolest things actually about the lending system is so we're lending always what the green line is uh against you know uh one yes token um when that green line goes up you can actually borrow more eth for uh no extra collateral so uh when we launched uh someone put in you know a couple uh yes tokens and then they waited you know maybe an an hour or two later and they asked me hey hey FY is there a bug uh I I'm pulling eth out of the system but I didn't buy more yes and the answer is no there's no bug actually the system is working as intended uh what's happening is that your guaranteed value of the token is increasing and the system is able to provision more eth for your borrow so uh the the dynamic that indigo is talking about is for all of the people that actually looped they borrowed and bought and borrowed and bought they're like four or five times levered uh when the floor price is going up they're actually borrowing four or five times the floor price value against the original money they put in uh and this is kind of like a very crazy Dynamic that uh we haven't really seen before uh and the other thing that's really funny is now every time when the floor goes up you see a lot of bids come in as capital gets unlocked in the system and the risk is being repriced and we get like every time the blv increases there's like humongous green candles that little like yeah and so it's it's really interesting to see um the other thing is uh yeah I got a lot of bug reports about that people are like oh your lending system broke it's giving me free money and it's like no that's just how the system works um okay so another really interesting thing is like because how much of the supply is actually collateralized um even though the blv is like a hard floor on the price there's kind of like this uh effective floor and uh the guys that a actually told us this that they were uh they were intending to actually lend at a price higher than our BV so um it's kind of it's it's just a cool property of the system and then uh lastly what I think is really interesting is um so anyone who looped where they like leverag and bought under the current BV they have very little incentive to sell what they do is like they usually just sit on their loan and they just uh every time the shift happens like they just get their increases in the BV and they're just happy sitting in the loan yeah so um I think like one of the most interesting Dynamics about this is uh in a baseline uh type Market the risk and reward is much more transparent to Traders you know if you're buying a token so first things to consider uh one is we don't have any um external Supply from the beginning so there's no tokens that go to the team there's no tokens that go to advisers or investors um everything that's ever bought uh is basically bought from the pool and the money that's used to buy the token it goes inside the second thing is um because you have you know this like much more fair Supply Dynamic um and you have like a a risk uh that's you know defined um you can choose what your risk tradeoff is uh you know you don't have to guess oh is it going to fall to this price or that price so um unlike most tokens you have a reverse incentive to sell as the price goes down because when the price is going down the risk the amount that you have left to lose continues to go down uh so now you have a trade-off if you if you don't want to you know stay in the asset you can still you know exit at very very deep liquidity but if you you know believe in it you also have opportunities to double down and because of that and because of the leverage that comes from the credit facility what indigo is saying is you know the prices will get closer and closer to the premium that gives more people leverage and more incentive to buy it and so uh yeah you have a you have counter cyclical incentives uh that that are at play one one last thing I only talked about like people buying uh I also don't want to make like yeah people sell this thing too actually and uh so uh you you can see up here there's like the giant red candles these are uh leverage unwind so people are just like uh repaying then selling and repaying and selling but what's happening it just keeps getting eaten up because there's actually more uh there's what it 20x there's there's more ability for people to buy than there is actually circulating Supply to sell so so you see like uh there's like huge levered unwinds but like it just gets eaten up right away and uh but I'm not saying like there's no risk in the system the risk is actually in the premiums up here right but uh but it's just interesting that like uh we're still like discovering how these market dynamics work uh yeah yeah it's a it's a completely new market uh one thing that we find that's like actually really interesting is so if you think about the efficiency of loan it's the uh difference between the the market price and the floor price so if you have a if the price is $5 but the floor price is $4 you're getting 80% of your loan back uh every time you Loop that you know you're getting 80% 80% 80% so in you know in an infinite series um it comes out to some like it converges towards some like X leverage right uh when you loop at lower PRI premiums um the LTV goes up and the available leverage in the system increases so it gets harder and harder to push the price down towards the floor because the compression of the premium brings up Capital efficiency in the system so uh the system is almost like a shock absorber of liquidity you know where it kind of like loads up uh a spring uh and then you know as it bounces up it kind of like unwinds a little bit and if you're trading or you're thinking about you know trading these types of assets the thing you consider isn't like okay what is the price and what do we think the price is going to be and what's the fdv all you have to really think about is like okay what's the minimum price how much Capital Efficiency do I get from participating in the system and you know what is the kind of like risk premium that I think you know is is too high and that I should be selling at yeah that's it that's it we have some cool graphics yeah uh yeah shout out to our like really awesome designer uh pillhead who like makes these amazing uh amazing pieces of art yeah yeah so uh I just want to I just want to say like what we're building next So currently we launched yes uh there's uh a lot of learnings with that and so we're currently working next on the Launchpad so that anyone can be able to create their own Baseline tokens as they want um that's currently going to be an audit soon and it'll be out soon hopefully and here's our socials if you guys want to follow along thank you we we do have maybe two minutes for questions if anyone has anything they want to ask based line we've got oh we've got two questions so we can we'll do that one first and then we'll have you ask yours can you hear me yeah that's better yeah it was really great presence thank you so much um I actually I've known your project actually yesterday we talked about it but actually I didn't realize that this is that uh that that project your project was kind uh very viral in Blast in the beginning as a concept ERC 4220 right ah yeah can you can you explain a little bit about the relations what is the RC 420 sure yeah um okay so just to clarify uh ERC 420 um is a joke uh it's mostly just a meme um it was uh for for marketing um because uh we saw like ERC 404 and people were talking you know what was a real standard for so 420 just alludes to the fact that um the price just keeps getting higher but that's it's it's it's a meme it's a meme the price well you know there's fluctuations obviously based on the the Baseline value but what we're trying to highlight actually the reason why we alluded to that well two things one is um we wanted to you know like we wanted to make sure people weren't you know like taking this too seriously um it is an experiment after all it's the first of many and it's the first time we've ever seen any token like this um so you know we know there's going to be potential issues or things like like that so we don't want to say hey this is like official coin it's it's a meme coin it's like 420 or the second thing is um the standard and I think it's it's really important for us that you know the reason we build this isn't just because we want to launch tokens but because we want all tokens to be like this uh you know if you have yes in in you know in your portfolio um no matter what the price is doing you always have the liquidity available to do other things you want in it you know so if you don't want to Loop like you know another strategy is that you can hold in your wallet and you can borrow the eth against it and you can LP it for yield or Farm or do other things and to me if you have a portfolio of assets like that where you know exactly what your guaranteed floor is for you know all of your Holdings and you have extreme Capital efficiency I think that is a kind of like standard that we should be moving towards you know and the other thing about these tokens is because they're all managed by the smart contracts they're not ruggable you know devs can't just mint themselves new tokens and dump in the market so they're much more secure they're much more you know protected of the capital um and they're much more rewarding for long-term participants yeah thank you thank you all right thank you very much um I think we'll move on to the next panel thank you Baseline give another round of applause thank you guys