Baseline Market Making
Under the hood, the BLV is a feature of a much larger system. Baseline is also a fully autonomous market making system, rebalancing bToken liquidity positions to automatically capture value from market fluctuations over time. Each time a bToken is traded or borrowed, Baseline accrues a small liquidity surplus via swap fees or interest, permanently growing the BLV.
Baseline's liquidity rebalances are unique in that they are handled by the protocol and executed permissionlessly: There's no centralized market maker in charge of liquidity provisioning, the protocol executes market making operations itself through smart contracts.
The key difference between Baseline and traditional market-making strategies is that Baseline aims to maximize value for its token holders. It does this by providing deep liquidity on the buy side to create a rising floor price and continuous liquidity on the sell side for constant price discovery.
In Baseline, profits from market making and lending are redistributed to token holders, ensuring fair value distribution and supporting positive price trends. This approach is possible because the entire token supply is minted and managed within Baseline’s automated market-making system.
Protocol-Owned Liquidity Positions
Baseline allocates liquidity across three distinct price ranges: Floor, Anchor, and Discovery.
The Floor is a narrow price range with highly concentrated liquidity. Its primary function is to ensure that it can absorb the entire floating supply of a Baseline Token. Think of the Floor as a substantial buy wall that allows every bToken holder to exit their position at the Baseline Value (BLV).
You may be wondering where the system sources the initial capital to guarantee the floor price. The liquidity is sourced from the presale of the Baseline Token (bToken). Unlike traditional token launches, where presale funds are typically distributed to the project team, Baseline token launches keep the liquidity in the market making system. See the IBLV section to learn how the initial liquidity is provisioned.
Intelligent Liquidity
Today, most on-chain liquidity is passively deployed as a single static liquidity position. This liquidity is often extremely inefficient and naively priced, requiring significant external capital to be effective. Most importantly, the structure does not allow for any flexibility, preventing the liquidity from adapting to changing market conditions.
Baseline uses a more sophisticated approach to liquidity management. Instead of a single static position,
the protocol dynamically allocates liquidity across multiple price ranges using four rebalancing strategies:
sweep(), slide(), bump(), and drop(). Each strategy impacts a different part of the liquidity
structure and fulfills a specific purpose so that Baseline tokens can offer more resilient and efficient
liquidity to their holders.
Rebalancing Strategies
When the Floor can be moved higher the protocol calls: bump()
Description
A bump() operation shifts the highly concentrated liquidity within the Floor to a slightly higher price range.
A bump() is a permanent change and cannot be reversed.
Condition
A bump() can be initiated when there is sufficient reserve capacity (e.g., ETH or USD) to purchase the entire
floating supply at the new, elevated price point. This new price point is one tick spacing above the current Floor.
Purpose
The bump() operation provides a mechanism for the market making system to increase the BLV, securing a higher token floor price.