Basis Cash
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Basis Cash

Crypto AMA with Spencer Noon

Spencer Noon AMA

Basis Cash is a censorship-resistant & fairly distributed implementation of the Basis Protocol, which after a 133M ICO was shut down by the SEC due to concerns its Basis bonds and share tokens may be securities.

We, the core developers of Basis Cash, were early supporters & observers of Basis when it first launched, and to this day believe that it is one of the best ideas to have ever been put forward in crypto. While Bitcoin first got us interested in blockchain’s use cases, it was Basis that first truly inspired us, by painting a picture of a world that runs entirely on decentralized digital dollars the policies for which cannot be corrupted or politicized. Basis is more relevant now today than it ever was in 2017/2018 — with regulators striking back against the decentralized movement by cracking down on Telegram and Libra, while their governments are printing money faster than ever before in human history.

This is not a DeFi project. We are simply leveraging the industry’s excitement in the category to bring much-deserved attention and engagement to the Basis Protocol, and to use this opportunity to distribute ownership in the protocol fairly.

Our only motivation is to bring the Basis Protocol into the world and to serve its community in implementing Basis’ vision to become the first widely adopted decentralized dollar. To that end, we are committed to taking no financial upside in Basis Cash’s success — we will raise no money and pre-mine no tokens. Instead, when we feel that the protocol has found reasonable product-market fit, we will ask the Basis Shares DAO for donations to keep contributing to the protocol.”

We’re bringing back basis.io from the grave.

AMA Transcript

Spencer Noon (Moderator): Today is the first time (I think) we’ve had pseudonymous founders on, but these are crazy times I suppose, Please welcome @DefiMorty and @defi_rick of “Basis Cash”! Rick and Morty (lol) — Q. Can you give us a bit of background on yourselves and tell us about Basis Cash too? We’ll then dive into questions

DeFi Morty: Ah geez, wanna go first? @defi_rick?
DeFi Rick: Shut up Morty. Of course, I go first. Spencer, thanks for having us. I think doing a detailed intro would defeat the purpose of choosing to launch anonymously — but suffice it to say we are:

  1. Big fans of Basis and spent a lot of time studying it in depth back in the day
  2. Big fans of Rick and Morty
  3. Wanted to make sure Basis protocol could see the light of day

Q. (Guest): What is the best way for people to get involved with Basis Cash?

DeFi Rick: Well, we’ve actually been reached out to & speaking to many luminaries in DeFi and stable coins, so that was a pretty pleasant surprise to us. I think Basis managed to capture the imagination of many of these folks back in the day, so think a lot of them just wanted to get involved and help out with the project.

We will be open-sourcing the codebase soon, so think there will be natural ways to help out testing the economic theory, contributing to the code, helping basis get integrated with live services and products, will probably have lots of areas to help out on

Q. Spencer Noon (@spencernoon): What if anything are you taking from the original Basis project? Curious if you got your hands on old source code, etc.

DeFi Rick: The Basis Protocol was revolutionary in that it placed participants into three buckets of risk appetite:

1. Shareholders with very high-risk appetite (presale buyers) that took the most risk of illiquidity, speculating on the future of the protocol

2. Bondholders with reasonable risk appetite, taking the role of stabilizing the stable coin price, speculating on the resiliency of the protocol

3. Stablecoin holders that are looking to just use the coins, speculating on absolutely nothing.

We’ve still upheld this centerpiece of Basis design, but have vastly simplified a lof of the mechanisms that were not practically implementable

Q. (Guest): Will you need people to post collateral to help support the system?

DeFi Rick: None. The Basis protocol does not rely on exogenous collateral to stay afloat. We thought about distributing tokens by having users post various tokens to a reserve-of-last resort, but felt like it wouldn’t suit the risk / profit appetites of most people in this market.

Q. (Guest): So when you answered @spencernoon that you are keeping the centerpiece, are their shareholders and bondholders in the Basis Cash design?

DeFi Rick: There is. Here are the changes we’ve made:

1. There is no more bond queue. Once there is sufficient seigniorage posted & peg has recovered, any bondholder can compete to redeem bonds against the system at 1:1.

2. Users must stake Basis Shares to the protocol to be eligible to receive seigniorage.

3. Governance added in

4. Tokens are fairly distributed. We are thinking of having the initial Basis cash distribution be given out to 5 different pools for stable coins — will be interesting to see liquidity compete

Q. (Guest): How do you plan to drive organic demand for the stable coin?

DeFi Rick: This is a good question, and not sure whether any stable coins outside of tether have answered this well. If you actually start going down the rabbit hole:

1. Defi tokens have value because they efficiently capture yield/gains coming from crypto leverage

2. Crypto leverage exists because users feel the need to speculate on price exposure, which ultimately relies on some user feeling bullish/bearish regarding some token fundamentals

3. Coin fundamentals — -> does this even really exist? Maybe what’s keeping this market going is the rate at which random grandmas log onto Coinbase to unwittingly buy Litecoin

Q. (Guest): When do you expect people to be able to start using Basis Cash’s stable coin? And will it be an ERC20?

DeFi Rick: Basis cash will indeed be an ERC-20. We’ve finished the development of the protocol (the simplified version is actually pretty easy to build), and having an audit company look over the code at the moment.

Q. How many people are working on Basis Cash atm?

DeFi Rick: Five — although given we all have full-time jobs (some in crypto and some without) contributions vary

Q. (Guest): Will the shareholders or bondholders have to run bots? What level of technical proficiency will be required for people to play an active role in stabilizing Basis Cash? Both at first and over time.

DeFi Rick: Good question — so Basis bonds will always be auctioned off when Basis Cash de-pegs at the price of 1 — spread ^ 2. This simple pricing allows users to reason about opportunity cost and pricing much more easily. At a later stage, we would like the ability for users to run arb bots against the protocol by simply funding some pool. But perhaps more useful for a later iteration, I think for this stage would be great if we could get intros to trading firms that could help to build up initial arb liquidity so that the bond market can weather first few contractions.

Q. (Guest): @defi_rick Would there be a way to start Basis Cash small, with training wheels (cap on size), in stages so that you could just within early adopters or people you guys know manage the risks and keep it stable and build up the resiliency and take off the training wheels in stages?

DeFi Rick: Yeah! the initial distribution for Basis Cash will be 100k / 5 stable coin deposits ( yCRV/DAI/USDC /USDT /SUSD ), so it will take a lot of time before the market cap can scale up

Q. (Guest): Are there plans for decentralized governance? If so will it be done right off the start like Yam?

DeFi Rick: There is indeed — for now we’ve forked compound governance. (thanks @rleshner for kind words of support) Governance won’t kick in until 95% or more of Share tokens have been distributed

Q. Spencer Noon (@spencernoon): It’s been a while since I’ve looked at Basis, can you walk us through how the launch will play out? Do you expect the stable coins to trade at $1 and stay close to the peg right from the start, or are you expecting it to be a bumpy start? And any idea when you’ll launch?

DeFi Rick: 1. We will distribute Basis Cash against 5 different stable coin pairs. This is more of a “fuck you” to yield farming overall in some sense — all of these assets are essentially the same from a farming perspective, so will give some to all

2. We will be releasing Basis Shares as liquidity mining incentives on Uniswap pools on both basis cash and shares, with the cash pool more heavily favored. This will make it more difficult to manipulate the prices of stable coin & lead to healthier markets in the long term.

3. Once 95+% of the share tokens are distributed, on-chain governance will be activated.

The ride will indeed be bumpy — we have no treasury to defend against contractions and no tokens to sell in case there is an uncontrolled expansion.

We have a growing faith in the on-chain bond issuance & redemption mechanism — getting pretty excited about its strengths over the original design. If our assumptions hold true, the mechanism will prove to be resilient and survive the market turbulence around the launch

Also, just mainly waiting for the audit, we scrimped on the fee so think they’re taking their time with it. We won’t surprise launch — plenty of notice for people to study up on the code & get comfortable.

Q. (Guest): I remember the latter point around contractions being somewhat of a flaw in the mechanism design of basis — how do you prevent a death spiral if there is no market expectation for the price to revert to 1 and thus no buyers of the bond?

DeFi Rick: Yeah — although I think the market’s loss of confidence in peg recovery exists in every stable coin (or pegged currency) design, it’s just that for Basis it explicitly manifests in the failure of the bond queue.

Q. (Guest): Does this Base coin have Seigniorage Shares?

DeFi Rick: It does — basis shares. You can get some by providing Uniswap liquidity for Basis cash when we launch with zero pre-mine.

Q. (Guest): How does the removal of the bond queue solve for this?

DeFi Rick: It doesn’t. My point was that any undercollateralized currency scheme is going to have the same failure risk, it’s just manifested in different forms and different people take the risk.

By removing the bond queue we make the markets a bit more efficient = users that are more responsive to monetary policy such as trading firms etc, get a leg up in claiming redemptions, and this allows the money supply to react more quickly. But this doesn’t intrinsically solve the black swan issue

Q. (Guest): Do you expect that Curve and yCRV will be enough to keep the basis bonds yield curve safe? Or do you think a custom AMM for basis bonds/shares will be necessary? How will you encourage enough liquidity during deflationary spirals?

DeFi Rick: Bonds are issued and redeemed against the system, so Basis Cash doesn’t natively implement an AMM. We’ve implemented a fixed formula to price bonds instead of an auction, such that a bond can be purchased when cash is de-pegged at 1 — spread ^ 2. So in situations where this pricing isn’t sufficiently large to offset the risks = economic failure. Could you say a bit more about how you foresee Curve pools interacting with our bonds?

(Guest): I suppose my main concern regarding AMMs (and this is one thing I wasn’t totally clear from in the docs) is that you can mint bonds by depositing yCRV. But what happens if there is a secondary market (e.g. a balancer pool w/ yCRV + bonds) that has sizeable liquidity? If the yCRV pool has one highly deviating asset (e.g. suppose sUSD was somehow able to be converted to something that mints a basis bond), there could be a time where it is cheaper to buy a bond outside of the create-redeem of the contract. Not that this is a likely scenario, but it could happen when the market is in a panic and stable coin prices stop mean-reverting (IvanB spent some time thinking about this with the original Basis design, albeit without the help of AMMs)

DeFi Rick: Oh. you can’t mint bonds by depositing yCRV. This is just to get the initial distribution out for Basis cash

Q. (Guest): What would you say to the original founders of Basis?

DeFi Rick: Nader, just wanted to say (despite appearances) that this is not an exit scam and we have honest intentions to see Basis existing in some form in the world. We’ve been watching you and the project from the sidelines and just wanted to use the currently friendly climate towards new experiments to launch Basis Cash. We are committed to not taking a single dime from this project and will continue development on donations from the community.
/ Fri 5:45 PM

Our design at launch will not be perfect, and we’ve made some steep sacrifices to get this out quickly. Would appreciate feedback and guidance in whatever form as we continue to drive the project forward.”

This is what we told Nader over a short chat we had a few days ago

Q. (Guest): Do basis shares or bonds go up in value? What is the right thing to buy/invest in here?

DeFi Rick: Well both can go up or go down in value. But the upside in Basis bonds is capped = 1 bond, no matter at what price they were purchased can be redeemed against the system for 1 basis cash. Basis shares have arguably much more risk but also much more upside

You can sort of think about basis shares as a DCF asset where each share gets a portion of the new money supply (minus the cost of volatility coming from bond operations)

Spencer Noon (@spencernoon): Alright guys we’re up on time. Unless you have any last questions to answer, thank you for coming on Rick and Morty! It’s clear you guys are quite sharp 🤔 What’s the best way to stay up to date on all things Basis Cash?

Stay in touch!

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