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BD & Earn

What is BD?​

Base Dollar (BD) is the USD-pegged stablecoin issued by the Base Dollar Protocol. It's decentralized, overcollateralized, and backed only by a basket of crypto native assets.

BD is a resilient stablecoin by design:

  • Only backed by crypto assets ("no real world assets" like US Treasuries)
  • Directly redeemable for the underlying assets at any time by any one permissionlessly (always convertible in a fast and liquid way)
  • Can only be created by users depositing more collateral.

What are BD's main benefits compared to other stablecoins?​

  • The current configuration supports WETH, wstETH, rETH, cbBTC, cbETH, and AERO. Aerodrome LP-token branches are also supported by the contracts.
  • BD can be redeemed for collateral through branches registered as redeemable.
  • BD has Protocol Owned Liquidity (POL) directed by governance, ensuring that there will always be sufficient liquidity to handle transactions
  • BD is Base native, and is built specifically for the Base L2 network.

What is BD's peg mechanism?​

Base Dollar uses Liquity V2's market-driven monetary policy through user-set interest rates to maintain BD's peg and to dynamically respond to situations where the token is above or below $1.00.

When BD trades above $1, borrowers tend to reduce their rates due to lower redemption risk, making borrowing more and holding BD less attractive. This helps correct the price downwards.

In contrast, when BD trades below $1, arbitrageurs will initiate redemptions to restore the peg. Borrowers' exposure to redemption risk prompts them to increase interest rates, boosting demand for BD (and Earn deposits) and pushing its price upward.

Note: Redeemability is configured per branch. LP-token collateral is not automatically non-redeemable, and the six currently configured branches are redeemable.

How can I earn yield with BD?​

  • Stability Pool deposits (Earn): Earn protocol revenue by depositing BD into the various Stability Pools.
  • Protocol Owned Liquidity (POL): Supply liquidity for BD onto incentivized Aerodrome pools.

Where does the yield for the Stability Pool deposits come from?​

The yield comes from two sources:

  1. Interest payments: Each borrow-market funnels 75% of its interest and upfront-fee revenue to its Stability Pool depositors (Earners). This is paid out in BD.
  2. Liquidation fees: Your BD will be used to liquidate under-collateralized loans, effectively buying their collateral with a ~5% discount. This is paid out in the respective collateral.

All the yield is fully sustainable, scalable and "real".

Is there a lockup period?​

There is no lockup period. Users are free to withdraw their BD deposits from the Stability Pool whenever they want.

What is the estimated yield on Earn?​

The yield is a representation of the rates borrowers are paying. Since 75% of the borrowers' interest payments go to Earn, the effective yield can exceed the average interest rate paid in a borrow market if less than 80% of the BD supply is deposited to the respective Stability Pool. This yield amplification sets Liquity V2 and Base Dollar apart from competitors and money markets where lending rates cannot be higher than borrow rates.

Check historic rates on Liquity V2 here.

Why are there multiple Stability Pools?​

The goals are to:

  • Establish separate borrow markets for different collateral assets with their own market driven interest rates, using the Stability Pool backing to dynamically split redemptions across the available collaterals (link to "Redemption").
  • Compartmentalize the risks as much as possible when depositing to the respective Stability Pools (Earn) by giving the depositors control over which collateral assets they want exposure to in case of liquidations.

How have Stability Pools evolved in Liquity based systems like Base Dollar, from Liquity V1 to V2?​

In V2, the concept of Stability Pools is expanded to accommodate multiple collateral types, keeping the interest revenue and liquidations proceeds inside the respective borrow market (collateral). Each collateral asset thus has its own Stability Pool to distribute yield to BD depositors.

Additionally, user-set interest rates in V2 influence the yield dynamics for Stability Pools depositors (Earn) as the yield is now fully sustainable coming from user-set interest rates (in BD) rather than token emissions.

How do risks differ for the different Stability Pools?​

Users can deposit their stablecoins into the Stability Pool of their choice, aligning with their risk preference and the types of collateral they're comfortable being exposed to. By selecting pools associated with a specific collateral, participants can tailor their risk exposure and potential reward profile.

By offering separate pools for different collateral types, the system allows users to choose their exposure based on the perceived risk and potential returns of each collateral asset. This compartmentalization helps manage systemic risk, ensuring that impacts from liquidations in one asset class don't disproportionately affect the entire ecosystem.

It is important to note that all BD holders including depositors still remain dependent on BD to keep its peg, remaining exposed to all collaterals backing the protocol.

What about LP Token liquidations?​

Each configured LP-token branch has its own Stability Pool and uses the normal branch liquidation flow.