Pre-Determined Token Issuance

In order for ease of integration, bTokens today operate on a fixed supply. By relying on a fixed supply, bTokens are more easily integrated into third party protocols and metrics reported by 3rd parties are able to be reported much more accurately. While token supply is fixed, circulating supply is dependent on market activity. In Baseline, the circulating token supply is a function of liquidity, not the other way around.

When buyers deplete the circulating supply of tokens on the market, Baseline will unlock bTokens directly into the liquidity pool to replenish any missing inventory. As these tokens are sold back, the protocol will remove any of the tokens collected in its liquidity positions from circulating supply. As a result, bTokens do have a fixed supply cap; but circulating supply can grow and shrink in response to market demand.

Due to Baseline's market making, bTokens are more naturally resilient to common market manipulation. Tactics such as cornering the supply ("bundling"), spoofing volume, and pushing price in a specific direction now require significantly higher capital expenditure than for traditional tokens. As a result, bToken markets are more authentic and reliable than what you traditionally see on token screeners and centralized exchanges.

The Solvency Invariant

Since bTokens cannot be minted externally, the protocol knows the circulating supply at any given time.

To ensure that the liquidity structure remains solvent across rebalances, Baseline uses the invariant Capacity > Circulating Supply. The invariant checks to make sure the liquidity in the pool can buy back all of the tokens in circulation.

• Capacity is calculated as the total amount of bTokens purchasable across all of the protocol-owned liquidity positions.
• Circulating Supply represents the total amount of bTokens purchased from the liquidity pool.

The invariant is simple: check that the current configuration of the protocol's liquidity positions can buy back more than all of the tokens circulation. While basic, this single check is what keeps the Baseline system secure despite constant changes in liquidity positions and circulating supply.