Basis Markets Investigation — Part 4 — Blockchain — $BASIS token raise
$20.725M USDC was raised in the IDO. Where did it all go?
TL:DR
After raising $7.5M worth of SOL and appearing to distribute 100% to founders’s wallets and retaining nothing for project funds (see Part 3), the Basis Markets team pitched a proposal to raise more funds through an Initial DEX offering (token IDO) to allow them “to buy a team of top-tier investment bankers, plus the best blockchain devs” to build out the DBLP.
Basis Markets raised $20.725M on Dec 11th 2021, closing the IDO at 8pm. 5 hours later, funds had been secured to FTX in USDC form, but appear to have come back out of FTX in USDT form and $2.48M was paid to 5 of the 6 founders, with the 6th one being paid 2 days later. They appear to have paid themselves upfront a salary of 496k per annum each for 5 years, leaving $1.16M per year for 5 years for all other project costs (including all those supposed investment bankers and blockchain devs…..).
Below we present evidence that 1 of those founders appears to have used almost $2M of funds that came from the token raise IDO to purchase Basis tokens, starting at 10c on Dec 13th, and stopping with final buy limit orders at 21c on Dec 19th. Funds from the IDO appear to have been used to pump the token price in the week following IDO.
Part 5 will examine what happened to the remaining $5.8M that were retained as project funds, or the treasury, or the Basis bank account, whatever you think it should be called. Strap in. Lots of evidence to be presented below.
Introduction
Welcome to part 4 of our investigation into Basis Markets. The second capital raise was a token raise via a dutch auction where anyone could participate to get access to Basis tokens. This was a big shift in strategy and tokenomics, with the NFTs retaining their access rights to the Basis Trade Engine platform, but profit / performance fees split out into the Basis token. There was a kind of a prospectus that was provided to NFT holders to vote on, with 2 versions differing in “minor” way due to issues with #slide16 in the first prospectus / deck. The first deck showed each NFT was projected to earn 18k per month at the end of year 3, a phenomenal oversight / error that meant that an NFT purchased for roughly $1880 USD was projected to earn 10 times that amount in a single month based upon the Basis Markets “base case”. The revised version 2 corrected this modelling error, with the update figure being $35k cumulatively at the end of 3 years. The revised version of projected profits was still part of the Basis Markets gitbook until at least November 2022.
Source — V1 prospectus: https://discord.com/channels/892400914579750973/902936506585452574/914226813193056277 (now deleted)
Backup source — https://web.archive.org/web/20221115005858/https://basis-markets.gitbook.io/welcome-to-gitbook/overview/usdbasis-token/token-utility
On November 28th, the Core Team sent a letter to owners appropriately entitled “Letter to the Owners” and addressed to the “Owners of basis.markets”.
There are a number of important elements in this letter that we will come back to in a later instalment, but for now, we are just going to focus on the last big pitch, the need to scale up the team with appropriate talent, as outlined below.
Note the budgeting / planning timeline mentioned of 5 years.
The Core Team is clearly outlining that the team size will need to scale up to deliver on the projected yields from trading the base case assumption of a $2B TVL by the end of 3 years (see graphic below). It clearly suggests that they will need to buy a team of top-tier investment bankers, and a top-tier trading team. The IDO pitch deck explicitly states that “time slicing” will be required.
In the Youtube townhalls, TraderSkew stated that buying investment bankers out of existing contracts would be very expensive. However, despite all of the challenges, the team claimed that: “The reality is, we can achieve a TVL of $1b+ by December 2022”. This claim of “we can achieve a TVL of $1b+ by December 2022” is included explicitly in the prospectus / proposal. This is saying they anticipated scaling from zero dollars when the pool was anticipated to go live by the end of Q2 2022, and scale to $1B within 6 months.
Initial DEX Offering — IDO results
The second capital raise went well, according to TraderSkew on Twitter (and in Discord), with Basis Markets raising $20.7M USDC between Dec 8th and Dec 11th, 2021. With 10 minutes left in the IDO, as you can see below, $18.7M USDC had been raised. With a few hours to go in the IDO, the Basis team enabled a feature on the IDO website page which projected hypothetical investment returns based on various assumptions. This particular example (shared by the Basis team on Twitter) shows an indicative TVL of $2B, with a 25% APR, and using a 21x earnings multiple, projects that the Basis token price should be $1.60 per token, which would provide a projected APR of 1280% per annum.
The team has included a small disclaimer: #dyor #nfa
As TraderSkew states in an extended Twitter thread: “We are beyond pleased with the outcome”. TraderSkew outlined the objectives of the raise, and how they approached running a secure capital raise IDO based on Mango Markets code that had potentially exploitable flaws in it. There was a fair amount of detail provided on rates of deposit, number of depositors and size of withdrawals across the 72 hour IDO period, with median bid of $3780 across 3011 wallets and 5920 transactions.
Source: https://web.archive.org/web/20211212171834/https://twitter.com/TraderSkew/status/1470078070929469446
During the IDO, the Basis Markets team asked a very interesting question on Twitter: why did you invest in $BASIS?
The clear response was that #Slide16 was involved. This was the slide which projected peak yield of $18k per month at the end of Year 3, almost 10 times the value of the purchase price of the NFT. This twitter poll includes the Core Team member Comguito, who also states “100%” when referencing #slide16. Other readers may also recognize VikingXBT as a prominent crypto twitter personality, also confirming that Slide 16 sold him as a reason to invest in $BASIS.
#Slide16 became such an in-joke that the team even made a Cameo video out of it.
It is possible to confirm that $20.7M USDC was raised by Basis Markets in their IDO. $20.7M was transferred from the IDO wallet (EKYE) to the Basis Markets $BASIS token mint wallet (SAjoy).
$20.725M USDC — Where did it go?
The question then becomes, what happened to that $20.725M USDC that was raised to build out a trading team of expensive “investment bankers” and the “best blockchain devs” that money could buy? What happened to the raised capital that was planned to help build out the ambitious roadmap and last for 5 years.
Well, it got sent to FTX, in 3 transactions. It is not known whether by Dec 11th, 2021, the Basis Markets team had set up a KYC’d business / corporate account at FTX, or whether the $20.725M USDC was instead sent to a KYC’d personal account. It is unlikely that this will even be known unless a regulator like the SEC seeks a court order to find out the beneficial owner of the account that received 3 transactions of $5M, $10M and $5.72M on Dec 11, 2021, and FTX is in a position to comply with that court order.
The 20.7M got split into $5M, $10M and $5.72M USDC, with each tranche sent through an intermediary account (Bsdo), before being forwarded to FTX.
The $20.7M left the IDO wallet (EKYE) at 20:13pm on the 11th of December, and the last tranche was sent from Bsdo to FTX at 20:30pm. The Basis Markets core team once again has proven efficient at taking the proceeds of the IDO, securing them, and then moving them quickly out of the original solana wallets.
Having moved the funds out of the trackable Defi space onto the FTX centralized exchange, it would be reasonable to assume that the trail goes cold, and no more information is able to be gleaned from the blockchain as the funds are secured to ensure that the team can deliver on the ambitious roadmap with a 5-year budgetary time horizon. But not in this instance.
At 20:30pm on the 11th of December, $20.725M USDC went into FTX.
At 21:28pm on the 11th of December, $4.9M USDT came out of FTX into a TraderSkew wallet (8iKY)
At 22:04pm on the 11th of December, $5.8M USDT came out of FTX into a TraderSkew wallet (8eDH)
At 22:14pm on the 11th of December, $2.5M USDT came out of FTX into a TraderSkew wallet (B2AM)
At 22:41pm on the 11th of December, $2.4M USDT came out of FTX into a TraderSkew wallet (BeGb)
At 00:51pm on the 13th of December, $4.9M USDT came out of FTX into a TraderSkew wallet (8iKY)
In total, $20.725M USDC went into FTX.
In total, $20.7M USDT came out of FTX into TraderSkew wallets within 4.5 hours.
We think it is not unreasonable to assume that $20.725M USDC was converted to USDT on FTX, and that the money coming back out to TraderSkew wallets is highly likely to be the raised capital from the $BASIS Token IDO, rather than an unrelated tranche of $20.7M. How do we know that they are TraderSkew wallets? A couple of ways. Firstly, TraderSkew doxxed his own B2AM wallet in one of his intro to crypto videos (along with his full name and personal email address inside his FTX account). B2AM was used to initialise his 8eDH TraderSkew.sol Bonfida namespace wallet. B2AM also initialised BeGb, and BeGb initialised 8iKY. They are all tracked in our database of Core Team member wallets.
The question is, where did the USDT go next after coming back out of FTX?
As can be seen from the above graphic, it appears as if each of the 6 founders received $2.48M USDT, with the first tranche of $4.968M received from FTX at 21:28pm being split roughly evenly between Andreas’s 7C1g wallet at 21:31 and TraderSkew’s 8eDH wallet at 21:34.
Andreas (21:31pm): https://solscan.io/tx/5zbsDys516PUXQ2yRnU8P5qr8mFB7QERz6QyFmrvJK6S6s9HaW9TkT2nAiPztid8sEnBcwsN7ic4DaRXSHDiRT1H
TraderSkew (21:34pm):
The $2.58M USDT received from FTX at 22:14 was transferred mostly to Comguito’s GPGk wallet (2.484M USDT), and 96k to TedTalksMacro wallet. The $2.38M received from FTX at 22:41pm was transferred in full to TedTalksMacro 4jB2 wallet, added to the 96k already received, for a total of $2.48M USDT.
Comguito (22:16pm):
TedTalksMacro (22:46pm):
The $5.8M USDT received from FTX at 22:04pm was transferred to a Basis Markets wallet (EB5V), and then 2.48M was transferred from there to CryptoBoole’s 2YEY wallet at 22:57pm.
CryptoBoole (22:57pm):
This concluded the main activity for the night of the IDO, 11th December, 2021. $20.725M USDC received from IDO at 20:13pm, transferred to FTX, likely converted to USDT, sent back out to TraderSkew wallets, and then 2.48M was distributed to 5 of the 6 founders, with the operation concluding by 22:57pm. A tidy few hours work for $2.48M each.
Unfortunately, it appears they forgot to pay DeltaOneDennis his $2.48M share of the IDO proceeds. That apparent oversight was rectified a couple of days later, with DeltaOneDennis receiving $2.48M USDT at 11:02am on Dec 13th.
TraderSkew, in answering a question about his role with the project (see below), appears to have confirmed the “even split” arrangement. No longer were funds split 51/20/10/7/7/5 as they were during the NFT SOL raise, but rather an even 1/6th each. This token raise seems to confirm this statement, with each of the founders receiving $2.48M USDT up-front.
So, after paying themselves approximately $2.484M USDT up front before delivering ANY of the DBLP roadmap, how much was left as “project funds” to last the full 5 years of the planning horizon? The answer appears to be $5.8M, which was the amount transferred to the Basis Markets wallet EB5V. There will be much more detail on the $5.8M that appears to be reserved as ‘project funds’ or ‘treasury’ or even ‘the Basis bank account’, in a future instalment (see Part 5 — Blockchain — What happened to the Basis bank account?).
If you would like to verify the transactions on-chain, the PDF below has the full Solscan links embedded as the underlined text for each of the nodes.
In total, 72% of the raised IDO capital appears to have been very quickly distributed to the personal wallets of the 6 founders in an even split of 2.48M each, and 28% appears to have been retained in a Basis Markets ‘project funds’ or ‘treasury’ wallet for use in delivering the roadmap.
If we stick to the idea of a 5-year planning time horizon as outlined in the pre-IDO documentation, it appears that the Founders were each paying themselves a full 5-year salary of $496.8k per annum, paid in full on Day 0.
The remaining budget of $5.8M for all Basis Market activities to deliver the roadmap, would average out at a yearly burn rate of $1.16M per year. It is unclear how many expensive investment bankers or “best blockchain devs” this would be able to cover on an ongoing basis, let alone legal fees for in-depth evaluation of the potential consequences of not registering with the SEC as a registered security, nor the infrastructure costs for hosting an architecture capable of managing between $1,000,000,000 and $9,999,999,999.
We will come back in more detail on what was done with the $5.8M that appears to have been retained as ‘project funds’. But for now, we will briefly note that the team have still not provided any financial reporting, despite promising balance sheet P&L and cashflow (as below).
TedTalksMacro — what did Ted do with his ‘share’?
In keeping with our Blockchain analysis, let’s have a look at some of TedTalkMacro’s chains of blocks. As per above sections, $20.7M was transferred out of the IDO wallet at 20:14pm. The money that ultimately would make it to Ted’s wallets seem to have gone through 2 burner wallets to FTX, converted to USDT on FTX, transferred out to TraderSkew’s BeGb wallet before finding its way to Ted’s 4jB2 wallet at 22:48pm. From there, the $2.483M USDT is transferred again to FTX. It is presumed that this second trip to FTX is to a KYC’d FTX account controlled by Ted rather than Basis Markets. It is presumed that the USDT is converted to USDC on FTX, and then it appears to come back out to another Ted wallet, Hwgiv about 36 hours later, at 4:45am on Dec 13th.
1M USDC is transferred from FTX to Hwgiv at 4:45am, and then again 1 minute later to Ted wallet HQjt at 04:46am. 14 minutes later at 05:00am, a limit order is placed on Serum DEX to purchase 500k Basis tokens at 10c each. There are no further Basis related transactions on Dec 13 or 14, however starting at 02:54am on the 15th of December, wallet HQjt appears to use the USDC that we believe to have originated with the token raise to start purchasing Basis tokens.
On December 16th at 12:20pm, a further 450k USDC are sent out from FTX to Hwgiv, and again sent on to HQjt wallet 1 minute later. Half an hour later, limit buy orders start, using the freshly received USDC, with at least 7 separate buy limits order between 12:48pm and 12:52pm.
On December 18th at 21:28pm, a further 500k USDC are sent out from FTX to Hwgiv, and again sent on to HQjt. The USDC arrives at 21:34pm, and the first buy limit order for Basis tokens occurs 4 minutes later at 21:38pm.
When examining the net activity in wallet HQjt between Dec 13th and Dec 19th, it appears that there are a net purchase of ~9.2M Basis tokens from Serum DEX, some 2.4M worth of liquidity provision on Raydium, and a net transfer of ~9M tokens to another Ted wallet 7vSa.
A similar analysis of HQjt using USDC shows that there is a net difference of 1.6M USDC transferred from HQjt to Serum over the same time period, reflecting net purchases of Basis tokens in the HQjt wallet. Whilst the first limit orders were placed at 10c on the 13th, the purchase activity in HQjt is loaded more heavily towards the back end of the period, meaning that the average purchase cost across this period is skewed higher, in the range of 16–17c. We have taken the liberty of marking the period during which funds ultimately derived from the IDO appear to have been used in wallet HQjt to purchase Basis tokens. The start of the period is when the first limit buy order is placed at 5am on the 13th, and the end of the period is when a single large transaction of 8.7M Basis is sent out to another Ted wallet. We have bounded the top of the box at 0.2082 which is very close to the highest limit buy order placed in the HQjt wallet at 21c. While TraderSkew claimed to have bought top tick (but for which no evidence has been found), TedTalksMacro wallet comes pretty close, buying into the last push into 24c that occurs over the following 1–2 hours after the last purchase in HQjt. This is the IDO fund pump zone.
If you would like to confirm the transactions occurring in wallet HQjt over the period of Dec 13–19, below is a PDF with solscan links to the vast majority of the buy limit orders in Ted’s HQjt wallet.
Just as a little sneak preview of a future instalment, we are just going to leave 2 blockchain transactions here for your inspection. They don’t line up perfectly, but they are very close.
The first is the highest purchase from the TedTalksMacro wallet at 5:25am on Dec 19th, 2021. A limit order to purchase 300k Basis at 21c is made from Ted’s HQjt wallet.
The second is a sell limit order from wallet 6S9c for 1M tokens at 21c, occurring at 10:34am on Dec 19th, 2021.
This is believed to be the highest single sell limit order placed by one of the founders in the process of disposing of their “locked” tokens.
But before we get to the evidence for sale of locked tokens, Part 5 is going to go in depth on what happened to the “treasury”, or “project funds”, or whatever you choose to call it. $5.8M USDC went into wallet EB5V. Part 5 — Blockchain — What happened to the Basis bank account? is going to look at the Basis bank account, and see if there are any linkages between the Basis bank account being closed and Andreas (founder number 2) disappearing in the same week.
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Basis Markets Investigation Series
Part 2 — Digital Property Inventory — what has been deleted???
Part 3 — Blockchain — NFT presale — how was 32,000 SOL split?
Part 4 — Blockchain — $BASIS IDO — how was $20.725M split?
Part 5 — Blockchain — What happened to the Basis bank account?
Part 6 — Blockchain — Seed Liquidity and Founder Locked Tokens
Part 7 — Regulation — were NFT/tokens “investment contracts”?
Part 8 — Regulation — was Basis Markets an “investment adviser”?
Part 9 — Regulation — did Basis Markets break “number 1 rule?”
Part 10 — Regulation — what did Lummis/Gillibrand change?
Part 11 — Founders — TraderSkew
Part 12 — Founders — CryptoBoole
Part 13 — Founders — Andreas / TedTalksMacro
Part 14 — Founders — DeltaOneDennis / Comguito
Part 15 — Conclusion
