Basis Cash — A Blueprint To Successfully Launching a DeFi project
A successful reincarnation and DeFi launch: the Basis Cash story.
Basis Cash is the reorganized and relaunched project of a now defunct stablecoin project called Basis. The original project Basis.io, came into the crosshairs of the SEC resulted in investors being refunded their investment due to regulatory constraints in the USA. The Basis team would have had to comply with U.S. securities law, which would have considerably increased its legal costs and hurt its competitiveness as a result. The new project Basis Cash, however, has launched without regulatory risk.
The Blueprint To FOMO
It is interesting to analyze the launch of the project, which was arguably quite successful. Two weeks after its launch, Basis Shares were trading at USD 225, and its market capitalization is about 35 million USD as of December 23rd, 2020. Basis Cash, the algorithmic stablecoin, is currently trading at a premium of USD 1.10, and its market capitalization is about USD 25 million.
Basis Cash registered a Twitter account at the end of August 2020 and started to outline the vision of the project via a Twitter thread, explaining Basis, its value proposition, and why they felt this project needed to be started again. In their thread, they posted two pictures of their logo and then tagged 18 of the most prominent cryptocurrency companies and personalities: Yam Finance, Zapper, Curve Finance, Spaghetti Money, Robert Leshner, Compound Finance, Yearn Finance, Shrimp Finance, MXC Exchange, Poloniex Exchange, Cointelegraph, KuCoin, Huobi, Bitmax, Binance, CZ, and Coinbase. While they did not get any public answer from these accounts, TrustToken, a leading stable coin project, did reply, wishing them good luck.
After this, they started to retweet one of Tarun Chitra’s tweets related to the original Basis project. Tarun Chitra is one of the most important crypto personalities in the Yearn Finance Ecosystem and the Founder of Gauntlet Networks, a simulation platform to build financial models for Blockchain protocols and applications to secure the network. This attracted the attention of Chitra, who cautiously tweeted about it, and the project started to gather interest from the Crypto Twitter community. As the campaign took off, the project continued to post tweets tagging media personalities and publications such as Coindesk or Cointelegraph.
By replying to controversies on the viability of the three-token model and its debt reliance with Ampleforth’s founder, Evan Kuo, the project was also able to expand its reach further and gather additional attention from the Crypto-community.
As they built their community on Twitter and Discord, they kept building their protocol and publicly requested an audit before releasing their codebase. They also started working on an updated version of their documentation at the same time.
They started a “real” marketing campaign in September 2020 by an AMA with Spencer Noon, a well-known investor at Variant Fund and the founder of Our Network, a tier-1 crypto newsletter. One week later, they issued a one-pager describing the Basis Cash Stability Mechanism and their initial documentation (without having released the protocol smart contracts).
After about 2 months of work, the team released an audit of its protocol from Certik.io, which started its launch process. From the audit release to the official launch, Basis Cash open-sourced its protocol and updated its documentation to improve its token economics, probably following private discussions with institutional investors. On the day of their launch, November 30th, Brady Dale from Coindesk covered their project in an article. Dale is one of the Senior “DeFi” editors at Coindesk, and he has quite a bit of influence in the industry.
Their launch was designed to create FOMO as investors could only deposit a maximum amount of USD 20,000 worth of stablecoins (per address and per pool) in 5 pools (DAI (MCD), yCRV, USDT, SUSD, and USDC) from the distribution contract. These 5 pools were entitled to 10,000 Basis Cash Token per day for 5 days.
After the 5-day initial distribution, BAC holders were entitled to Basis Share tokens on the condition they provided liquidity to the Uniswap DAI-BAC pool 1. 750,000 shares were gradually released via liquidity mining, which created instant liquidity for BAC. Uniswap DAI-BAC pool 2 allows liquidity providers to mine an additional 250,000 shares for one year.
On December 1st, they provided a post-launch analysis, which described the good and bad lessons learned from the launch. On the bright side, they formed a robust community, and people were extremely receptive to the idea of investing in a “decentralized central bank.” They also received significant support from VCs, who provided feedback and improvement ideas to support the development and launch of Basis Cash V2. On a more negative note, the protocol experienced front-end glitches due to a free version of Infura. Second, the project’s launch was driven by significant speculation, and its stablecoin was trading at a significant premium.
Post-launch they did not stop and started to work on their first improvement proposal. They have also kept on building their protocol while taking part in an AMA organized by “Gem Chasers,” a Telegram community of speculators. They have also received “public support” from Erik Voorhees, CEO of Shapeshift. From a business perspective, they were also rapidly integrated into Dharma, which VCs may have pushed with connections to both projects.
Their last tweet was a provocation against the Federal Reserve on December 17th, 2020. However, it seems they are still active on Telegram and have been recently listed on Gate.io.
Basis Cash protocol’s vision is to become a decentralized central bank. The protocol leverage incentives to reduce the supply of their stablecoin, which we will further describe below.
Basis Cash is a traditional seignorage shares project, which leverages a three-token system: Basis Cash (BAC), Basis Bond, and Basis Share.
Basis Cash is a stablecoin pegged to the U.S. Dollar via Multi-collateral Dai, whose peg is managed by incentives to purchase Basis Bond (reduce BAC supply) and Basis Share (increase BAC supply).
Basis Bond should be purchased when their price is below 1 Basis Cash as they are redeemable for 1 Basis Cash upon redemption. This allows bondholders to earn a premium if they purchased it below the redemption.
Basis Shares entitle their token holder to a pro-rata of the Basis Cash token stored in the Boardroom contract.
The protocol is composed of 7 smart contracts listed below:
3. Basis Cash
4. Basis Bond
5. Basis Share
6. Price Oracle
7. Token Distributor
The Basis Cash, Basis Bond, and Basis Share are contracts designed to issue and burn the Basis Cash and Basis Bond tokens.
The Treasury contract facilitates the purchase of Bonds and their redemption, while the Boardroom contract is used to manage the dividends shared with Basis Shares holders. Price oracles are used to collect the pricing data on the DAI-Basis Cash exchange rate. Finally, the Token Distributor ensures Basis Cash and Basis Shares to stakers.
Basis Cash Issues
The core issue with algorithmic stablecoin projects such as Basis Cash is that no asset or liability is currently backing up its value. Its value is solely determined by its elastic supply and is extremely speculative as a result. Another core issue previously discussed is that there is no lender of last resort in this ecosystem, which could trigger a massive economic crisis should this monetary system be used at scale in the “real economy.”
Despite its success among speculators, Basis Cash had to produce four improvement proposals in the past two weeks to fix core issues with its current protocol mechanics. While such commitment is reassuring, the project developers did not properly consider some of these issues before the protocol launch, which is a little bit concerning.
What can we learn from Basis Cash?
At Gene Finance, we believe that financial innovation should be grounded in solid economic and finance principles. We do appreciate the interesting properties of stable tokens with elastic supply and believe we can leverage such economic design to produce better DeFi products.
Furthermore, we believe Basis Cash has adopted an excellent social media strategy focusing on building traction via Twitter and funneling its Twitter following into its Telegram group. Besides, tagging large accounts in some of their posts has allowed them to connect with some of the most important DeFi personalities (e.g., Robert Leshner and Tarun Chitra) and has probably led to both VC and business partnerships in private. It is indeed interesting to note that Dharma, an application built upon Compound Finance, very rapidly integrated Basis Cash. This has allowed the project to grow exponentially after its launch and reach its current market capitalization in only two weeks when most projects fail to gain such kind of traction more than a week after the launch, if ever.
At the end of August 2020, Basis Cash registered a twitter account and started to outline the vision of Basis Cash, it’s value proposition and why the projects was being launched again.
After this, they started to retweet a tweet made by Taurn Chitra related to the original project. Tarun Chitra is one of the most important crypto personalities in the Yearn Finance Ecosystem and the Founder of Gauntlet Networks, a simulation platform to build financial models for Blockchain protocols and applications to secure the network. This attracted the attention of Chitra, who cautiously tweeted about it, and the project started to gather interest from the Crypto Twitter community. As the campaign took off the project continued to post tweets tagging media personalities and publications such as Coindesk or Cointelegraph.
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