How Baseline Works

Baseline combines fundraising, balance sheet, market structure, and price discovery into a unified system called Token-Owned Liquidity:

1. Token owns Market Structure (Baseline Market Maker): Through the Baseline Market Maker (BMM), the token manages its own liquidity using a custom bonding curve. Unlike Uniswap's constant-product formula that spreads liquidity thin, BMM creates capital-efficient markets that take into account circulating supply and price.

2. Token owns Balance Sheet (Baseline Value): Through the Baseline Value (BLV), reserves back a guaranteed floor price that can only increase. Unlike traditional tokens with no backing, BLV is intrinsic value guaranteed by the token.

3. Token guides Price Discovery: Because the token controls its own liquidity, it sets the depth, slippage, and marginal price of the token. Furthermore, since it's circulating supply aware, it can adjust liquidity to optimize for value accretion.

4. Trading activity strengthens the system: Through fee capture and floor growth, every trade increases the token's value. By owning the liquidity, the token owns all trading fees, making it a revenue-generating asset. The fees go to raising BLV over time, and increasing the token's book value.

Why does this matter?

In traditional markets, these four components are owned by separate entities with conflicting incentives:

• Fundraising: Capital forms off-market through private rounds, or IPOs managed by banks
• Market structure: Market makers are third-party intermediaries providing liquidity for self-interested reasons
• Price discovery: Exchanges match orders without knowledge of the underlying capital structure, creating disconnected price signals
• Balance sheet: Balance sheets are opaque and controlled by management, or through offchain accounting and corporate filings

Capital formation in crypto has evolved through several phases:

Each attempt merged some components, but with limited success:

• ICOs disconnect fundraise from liquidity bootstrapping. Projects raise capital, but still depend on professional market makers or exchanges to facilitate liquidity and trading
• AMMs provided a 24/7 liquidity solution with bonding curves, but require projects to rent liquidity via pool2 incentives, adding downward pressure on the token's price through continued emissions
• AMMs provide no backing guarantees, and perform poorly at price discovery, creating volatility and easy manipulation. Any value accrual is extracted by professional traders, leaving nothing for the token itself. The token price ends up looking like a pump-and-dump, losing trust with community and hurting the project's brand reputation

This explains why over 85% of tokens (opens in a new tab) trade below their launch price.

What does this enable?

Baseline is the infrastructure of choice for the next generation of capital formation. By using Token-Owned Liquidity, projects can rest knowing that their token is trading in a liquid market with healthy price discovery. Holders can be confident that their token has a guaranteed floor price. Creators unlock new revenue streams from trading fees, and community members benefit from staking rewards, liquidation-free borrowing, and leverage without liquidation risk.

Staking: Earn a share of trading fees by staking your bTokens. Through fee distribution, stakers capture value from trading activity. Unlike pool2 staking that requires emissions (diluting holders), Baseline staking rewards come from real trading revenue.

Borrowing without liquidation: Borrow against your bToken position at 0% interest. Because BLV backing ensures the loan is always collateralized, there's no liquidation risk and no interest rate.

Leverage without liquidation: Build leveraged exposure to your bToken. Because the floor price is guaranteed, positions can't go underwater and there's no liquidation threshold.

Next Steps

• Token-Owned Liquidity (TOL): The balance sheet model
• Baseline Value (BLV): Understand the floor price mechanism
• Baseline Market Maker (BMM): How the market maker works
• Fees: How fees grow the floor price
• Launch a Token: Build with Baseline
• Start Trading: Buy, earn, borrow, and leverage

Deep Dive: Capital Formation Theory

For readers who want to understand the underlying framework, here's how capital formation works across all markets.

Every market, whether stocks, bonds, or tokens, operates through four interconnected components:

1. Fundraising is where money enters the system. In traditional markets, this happens through IPOs, private rounds, or bond issuance. In crypto, it's presales, ICOs, or fair launches.
2. Balance Sheet is where value is stored and accounted for. In traditional markets, this is done offchain in corporate filings and accounting departments. In crypto, this is done onchain either through multisigs or DAOs.
3. Market Structure defines liquidity depth, where it concentrates, how much supply should be sold (or be bought back), and encodes rules for updating based on order flows. In traditional markets, this is done through large exchanges (e.g. NYSE, NASDAQ) and order books. In crypto, this can be done through Centralized Exchanges (CEX) and order books, or through Decentralized Exchanges (DEX) and Automated Market Makers (AMMs) and liquidity pools.
4. Price Discovery is the trade-by-trade process of finding what buyers will pay and sellers will accept. Prices, and thereby volatility, emerge from the interaction of supply available for sale, demand wanting the asset, and the available market structure to support the trade. In traditional markets, this is done with the help of professional market makers (i.e. Citadel). In crypto, this is still done with the help of professional market makers (i.e. Wintermute), but increasingly through algorithmic market makers (i.e. Baseline).

These four components are tightly coupled and influence each other continuously:

• Fundraising enables an initial market structure to emerge
• Through liquidity bootstrapping, and a pricing mechanism, the market structure facilitates price discovery
• Through marginal price, liquidity depth, and slippage, price discovery either begets more liquidity, or depletes it, thereby influencing the market structure
• Through trading activity thanks to a well-designed market structure, the balance sheet is strengthened or weakened, and the market structure is updated accordingly
• As balance sheet grows baseline value, and book value, the token becomes more valuable, attracting more fundraising
• As price discovery happens, market cap increases, and healthy liquidity depth attracts more fundraising

When these components work together, markets are stable and efficient. When they're misaligned, markets become chaotic.