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BaseD & Earn

What is BaseD?​

BaseD is the USD-pegged stablecoin issued by the BaseDollar Protocol. It's decentralized, overcollateralized, and backed only by a basket of crypto native assets.

BaseD 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 BaseD's main benefits compared to other stablecoins?​

  • BaseD is backed by wETH, cbBTC, wstETH, superOETHb, plus Aerodrome LP tokens.
  • Standard collaterals are always redeemable for the underlying assets, meaning you can always swap it as if worth $1, for the collateral backing it
  • BaseD has Protocol Owned Liquidity (POL) directed by governance, ensuring that there will always be sufficient liquidity to handle transactions
  • BaseD is Base native, and is built specifically for the Base L2 network.

What is BaseD's peg mechanism?​

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

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

In contrast, when BaseD 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 BaseD (and Earn deposits) and pushing its price upward.

Note: Only standard collaterals (wETH, cbBTC, wstETH, superOETHb) are redeemable. LP token collaterals are protected from redemptions.

How can I earn yield with BaseD?​

  • Stability Pool deposits (Earn): Earn protocol revenue by depositing BaseD into the various Stability Pools.
  • FsBaseD Pool: Opt-in to the aggregated stability pool for ALL LP token liquidations, earning enhanced yields with AERO rewards.
  • Protocol Owned Liquidity (POL): Supply liquidity for BaseD onto incentivized Aerodrome pools.

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

The yield comes from three sources:

  1. Interest payments: Each borrow-market funnels 80% of its revenue to its Stability Pool depositors (Earners). This is paid out in BaseD.
  2. Liquidation fees: Your BaseD will be used to liquidate under-collateralized loans, effectively buying their collateral with a ~5% discount. This is paid out in the respective collateral.
  3. AERO rewards: For FsBaseD depositors, 10% of all AERO farmed from LP token branches is distributed.

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 BaseD 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 80% 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 BaseD supply is deposited to the respective Stability Pool. This yield amplification sets Liquity V2 and BaseD 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 BaseDollar, 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 BaseD 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 BaseD) 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 BaseD holders including depositors still remain dependent on BaseD to keep its peg, remaining exposed to all collaterals backing the protocol.

What about LP Token liquidations?​

BaseDollar introduces FsBaseD, an aggregated stability pool that covers liquidations for ALL LP token types. Instead of separate pools for each LP token, FsBaseD provides a single opt-in layer where depositors earn enhanced yields including AERO rewards.

See FsBaseD Pool for details.