Non-Liquidatable Leverage
Beyond its impact on market sentiment, the BLV enables a novel DeFi mechanic: non-liquidatable, oracleless lending. This innovative approach significantly enhances the utility and efficiency of bTokens.
Baseline's unique BLV guarantee allows the protocol to offer leverage on bTokens by preemptively lending their underlying BLV directly from the liquidity pool. Since the protocol can always buy back each bToken at the BLV price, it can never accumulate bad debt from these loans. Any unpaid loans are effectively treated as buybacks at the lowest possible price, allowing users to repay loans on their own terms without worrying about market activity.
The absence of liquidation risk also eliminates the need for oracles, drastically simplifying the protocol's lending implementation. This enables Baseline to offer various forms of non-liquiditable leverage for bToken holders, drastically improving their capital efficiency and liquidity.
Infinite liquidity
Unlike other most lending protocols, users borrow directly from the protocol-owned reserves rather than from other users. This approach eliminates the risk of third-party lenders removing liquidity during periods of market stress. Instead, liquidity comes directly from its protocol-owned liquidity positions, starting with the Floor position. Whenever a new loan is opened, Baseline pulls the corresponding liquidity directly from the liquidity pool. This allows Baseline to offer infinite liquidity, since there is always more liquidity than the amount of borrowable BLV across the total circulating supply.
If you look at the transaction for a loan, you might see a lot of tokens moving around. This is because the protocol is withdrawing the liquidity directly from the pool.
Loan-to-Value: LTV
Loan-to-Value, or LTV, is a crucial concept in lending. It describes the amount of capital you can borrow for the amount of capital collateralized: the higher the LTV, the more efficient the loan. Most lending protocols today rely on a third-party services or governance control to determine safe LTVs for accepted collateral, but Baseline's lending implementation automatically offers the highest possible LTV while still being safe.
In the Baseline system, a bToken's LTV is purely market-driven: as a bToken's price approaches its BLV, users can borrow more relative to their collateral's cost. This introduces a unique dynamic to the bToken market structure, where buyers gain increased access to capital as a bToken's price decreases: the increase in leverage, coupled with an improved risk-return profile, also contributes to sustaining a healthy market premium for a bTokens.
When loans are taken in Baseline, users don't choose the amount to borrow against their collateral; the protocol automatically borrows the maximum allowable amount (the full BLV).