*Forward the Original Title：Eternal inflation and the token price is up-only? Uncovering the mystery of Baseline, the team behind YES

Recently, YES on Blast has attracted much attention. The memes of “upOnly, never falling”, “no liquidation mechanism”, and “multiple leverage” are enough to be a Ponzi, causing the community’s FOMO. Even Adam Cochran (AC), a partner of Cinneamhain Ventures, also discussed with the community on Discord and read all the code of Baseline. Not only that, but KOLs also bought in crazily. On-chain data shows that Machi Big Brother has already built positions of 1.5 million US dollars of YES, with an average cost of 4.47 US dollars.

However, many people are asking, why does YES only rise and not fall, and why does its total supply keep inflating? Today, we will unveil the mysterious veil of YES and its team Baseline. How does it achieve “soaring over the cloud”, and why does it keep issuing tokens? Let’s start with YES!

What is YES?

YES is the first token on Blast to utilize Baseline’s automated tokenomics, which is an ERC420 token that will soon be launched on Blast. However, we still haven’t found a clear definition and explanation of what the BRC-420 defined by Baseline is. Unsurprisingly, this is a new concept invented by Baseline.

YES previously launched its first Initial BaseLine Value (IBLV) presale at 10:00 on March 2, and by 03:55 on March 3, 87% of the presale was completed. The team set a minimum price (IBV) for YES, and community members who meet the criteria can deposit ETH to buy YES at the IBV price, up to a limit of 340:

• 100 users who participate in the Base Invaders game and get the Jeet Slayer role in Discord, and 400 users who get the Based role, can be allocated 228 ETH (67%);
• Jimmy Stimmy community members receive a distribution of 112 ETH (33%).

According to Dexscreener data, at 8:00 on the morning of March 3, YES opened at 1.92 USDT. After about 2 hours online, YES’s trading volume accounted for half of Blast’s trading volume. At 04:00 in the early morning of March 4, YES rose to a high of 7.07 USDT, with a maximum increase of more than 3 times, and is now quoted at 5.83 USDT.

YES is touted as the “up-only token”, and its team members have often FOMO in the community.

YES Twitter also claims YES’ price action is “Today’s top, tomorrow’s bottom”. But yesterday’s Yes official tweet has been frozen.

Seeing this, you might be wondering what is IBLV? The “upOnly” tag is too Ponzi! So what is going on? Don’t worry, let’s start with Baseline, the team behind YES, and gradually unveil the mystery of YES.

Baseline Past and Present

If you’ve been following Blast recently, chances are you know Baseline is one of the 47 champion projects selected for Blast BIG BANG. Tracing back further, Baseline’s predecessor was Jimbos protocol, which suffered a $7.5 million flash loan attack in May last year. Baseline has also provided an allocation of YES tokens for victims of the Jimbos protocol (Jimmy Stimmy community members).

On July 28 of last year, Jimbos was renamed as Baseline Protocol, announcing its plan to create a permissionless algorithmic market maker protocol. This protocol expands on the Protocol Owned Liquidity (POL) proposed by Olympus and uses smart contracts to manage token liquidity within the concentrated liquidity pool. At this point, you might notice similarities with Trader Joe’s liquidity order book and Uniswap v3’s concentrated liquidity. However, the difference is that Baseline aims to implement an automatic market maker and optimize liquidity deployment through code, because the team believes humans are unreliable and operational costs are high.

Speaking of POL, many people believe Baseline has a close connection with the Olympus team. However, Berachain founder Smokey The Bera has intentionally distanced OHM from Baseline, arguing that projects that draw on the POL idea should not build their reputation on OHM, but should follow their own path.

Baseline officially launched on February 15 this year. Its logic is quite simple. The initial liquidity is fully deployed on Blast’s native DEX Thruster (a fork protocol of Uniswap v3). Users can deposit ETH to purchase tokens (such as YES) within the protocol. The deposited ETH forms the liquidity position of the protocol and can be used for Baseline’s permissionless market-making mechanism and native lending mechanism. Baseline reserves enough liquidity in various ways to ensure that the minimum price (BLV) of the token (such as YES) can be maintained even when everyone is selling. In fact, if smart contracts are not attacked, and as the number of Baseline users and the amount of funds increase, the BLV price will never decrease but will continue to rise.

How to achieve “upOnly”? Baseline Protocol

In the Baseline protocol, “upOnly” is a very important technological capability and narrative, and it also embodies a meme culture.

Having said that, let’s start with Baseline’s algorithmic market maker mechanism. First, after a user purchases a token (such as YES) and provides ETH liquidity, the liquidity position held by the protocol will be allocated by the protocol into three price ranges: Floor, Anchor and Discovery:

• Floor has the narrowest price range but the most concentrated liquidity. When users collectively sell circulating tokens, sufficient liquidity within a narrow range can ensure that the price of BLV is stable enough and will not fall;
• Anchor’s price range is slightly wider, but its liquidity is much less. It mainly serves a transitional role to facilitate funds entering Discovery;

• When the liquidity breaks through the Floor and Anchor ranges, it will enter a wider Discovery price range, and normal users will trade within this range. The liquidity in this range is more dispersed, which is conducive to the rise and fall fluctuations of the token market price.

• Currently, the YES market price is 0.001601 ETH (about 5.77 USDT), the BLV floor price is 0.00116 ETH (about 4.18 USDT), the Anchor price range is 0.0012 to 0.0016 ETH (about 4.32 USDT to 5.77 USDT), and the Discovery price range is 0.0016 to 0.3679 ETH (approximately 5.77 USDT to 1327 USDT).

Typically, when whales enter the market and large capital breaks through the Anchor price range, new tokens are minted within the Discovery range and sold at a profit higher than BLV and Anchor. Once the profits accumulate enough, it returns to the Anchor position, as the algorithmic market maker mechanism will invoke shift() to raise the top price of the Floor range and increase the bottom price of the next Discovery range by the same ratio. Simultaneously, the protocol will also extract a portion of ETH from the Anchor position into the Floor position to increase Floor liquidity. When profits are ample, the protocol can still buy back all circulating tokens at a higher price, raise the token’s low price, and redeploy new Anchor positions with additional ETH liquidity. Of course, the project side can also manually adjust the price range to the Anchor position. In addition, when the price falls, the liquidity rebalancing strategy will slide() the Discovery position to the market price and compress the Anchor position, which will not affect the Floor bottom price. Of course, if this is still not intuitive enough, you can simulate the liquidity position distribution of Baseline tokens through the following website: https://baseline-simulations.streamlit.app/.

Speaking of this, don’t you smell a strong Ponzi scheme? Baseline precisely makes a profit by selling tokens at a premium, ensuring that protocol revenue always exceeds the value of tokens in circulation.

Let’s look at Baseline’s lending mechanism. It uses an over-collateralized lending mechanism, with a Loan-to-Value (LTV) ratio of 100%. Moreover, since Baseline has extended POL, the security of the protocol owning liquidity will be higher, and users do not need to worry about the risk of capital withdrawal. Furthermore, Baseline’s lending mechanism has no liquidation risk. Every token has a Floor price reserve to support it, and the protocol will not confiscate the borrower’s assets but will be based on the loan term. If it defaults at maturity and fails to repay the loan, the protocol only needs to destroy the collateral to reduce the circulating supply and reserves by increasing the intrinsic value ratio.

In Baseline’s design, users can deposit the purchased tokens to borrow ETH and use the borrowed ETH to buy tokens again to create a leveraged position. In other words, without the risk of liquidation, a user buying Baseline tokens means that they can achieve 2x leverage through collateralized lending, and a user’s one set of operations has already helped Baseline token prices to “soar over the cloud”. However, it should be noted that each user can only apply for a loan once, and each time only needs to pay a one-time fee of 0.01095% when making a loan.

Here again, let’s talk about how Baseline generates protocol profits to increase BLV. There are three specific ways:

• LP income: Baselime’s LP income is mainly concentrated in the Discovery range, and about 78% of the liquidity has been deployed to this range and has not yet been launched. The fee level in this range is 1%, and exchanging in this liquidity pool requires a 1% handling fee, which will be directly used to increase the BLV floor price.
• Liquidity rebalancing fee: During shift(), the protocol will also transfer part of it to the Floor range to increase liquidity. When the BLV price increases, the protocol calculates the excess tokens and sends a portion of them to the team (since all liquidity is deployed on the protocol, the team does not have any allocations);
• Loan Fee: The one-time daily fee that users pay when taking out a loan or extending the loan term will be directly used to increase BLV.

The Mystery of the Protocol: YES Eternal Inflation?

Many people are confused as to why the total supply of YES on the Blast browser keeps increasing. Community members refer to this as the “Mystery of the protocol,” and no one seems to understand what’s going on. Furthermore, current explanations about YES and Baseline avoid the issue of token inflation. This is not surprising since there’s no explanation found within the Baseline documents.

But I took a look at Discord and found some clues. In fact, Baseline automated tokenomics is divided into two levels, namely floating supply and total supply.

Floating supply refers to all tokens outside of Baseline’s liquidity position, i.e., tokens that have been purchased by users and do not belong to Baseline. If you hold a token, it means you own a portion of the floating supply. If a token is destroyed, it will not be counted in the floating supply. It can be understood as what we normally understand as the total token supply.

Baseline’s total supply includes all tokens in circulation, including Baseline POL without reserve support, but POL will not be considered as circulating supply for tokens like YES. For example, only by matching ETH liquidity and issuing YES can form Baseline’s own liquidity position, otherwise it cannot be filled into the liquidity pool to provide sufficient liquidity for the protocol.

The protocol is concerned with the “floating supply”, i.e., the net tokens purchased from the token pool. As previously analyzed, what Baseline wants to do is to have sufficient reserves to buy back all circulating tokens, and finally, the BLV will not fall below the Floor price range. However, the premise is, the Recovery liquidity pool must have sufficient liquidity positions to earn profits for the Floor to enhance the BLV price.

Therefore, what everyone sees as the continuous growth of the YES token supply is not referring to the “Floating Supply”, but the YES tokens issued for the POL positions deployed in the liquidity pool. In simple terms, the token supply without reserve support will continue to grow, while the supply with reserve support will not grow.

One more point to note, the newly issued token does not have a target issue rate. When users add ETH liquidity to the pool, the protocol calculates how much liquidity is needed for the corresponding position, mints the corresponding amount of YES for matching, and adds it to the liquidity pool. Therefore, this also creates a misconception that YES is eternally inflated. The fact is not entirely the case, there is also a corresponding token destruction mechanism during liquidity rebalancing. If YES and other Baseline tokens are surplus, they are simply destroyed, which can offset the newly issued token supply.

How is the YES market cap calculated?

After clarifying the token issuance and burn situation, we can calculate the market cap of YES. Currently, data from the Blast browser shows that the total supply of YES is 69.23 million, but the liquidity deployed in the Discovery range by the protocol is still 55.05 million, and the current market price has just entered the Discovery range. This means that there are only 14.18 million YES in actual circulation. At the current price of $5.71, the market cap of YES should be approximately $80.96 million.

Will Baseline Fall into a Death Spiral?

If everyone were to sell YES like a bank run, would the liquidity within the Floor range truly be sufficient? The Baseline team states that they have already simulated this situation, and even without any circulation of YES, there would still be a few ETH left in the Floor. The protocol has enough reserves to buy back tokens in circulation.

Cinneamhain Ventures partner Adam Cochran said that he has read all the code and may still have many problems, but the existence of Floor in this price range is still better than most projects.

Of course, under Baseline’s BLV mechanism, will the Floor prices of tokens like YES really not fall? Will they not fall into a death spiral? Will the tragedy that Jimbos Protocol encountered before not be repeated? I don’t understand code, and my IQ clearly can’t keep up. If I were to participate, I would probably trust the team. But in the end, it still has to be left to the market to test. After all, Ponzi schemes are beautiful until they crash.

Disclaimer：

1. This article is reprinted from [foresightnews], Forward the Original Title ‘Will eternal inflation only rise or not fall? Uncovering the mystery of Baseline, the team behind YES’,All copyrights belong to the original author [Peng SUN]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.