DeFi Project, Basis Cash, to Offers Users 400X APY Returns With ‘Two Farmable Tokens’
- Rick and Morty currently offer yield farmers over 40,000% APY returns in new decentralized finance (DeFi), Basis Cash.
- The project claims to be the first DeFi project to offer two farmable tokens at a go.
- Before reading any further, you need to understand Basis Cash is an experimental project, and you should do detailed research before investing in the project.
Two anonymous developers, alias Rick and Morty (from the popular Adult Swim animated series) announced the launch of Basis Cash, based on Basis Protocol’s stablecoin, Basis. The smart contracts to the project opened up on November 30, allowing users to start earning rewards by providing liquidity.
According to a Medium post released earlier this month, Basis Cash protocol offers two farmable tokens – Basis Cash, a stablecoin pegged to the dollar at $1, and Basis Share (BAS). This token allows the owner to receive rewards if the price of Basis Cash (BAC) is above a dollar. The platform uses an algorithmic system to balance the cost of BAC at $1.
The distribution of BAC tokens started earlier today as the developers plan to distribute 50,000 BAC rewards to early depositors of DAI (MCD), yCRV, USDT, sUSD, and USDC distribution contract. The first distribution, known across crypto circles as Pool 0, will distribute 10,000 BAC for the first five days, with each stablecoin pool receiving the same number of tokens.
Depositors to the distribution contract are allowed a maximum of 20,000 tokens to anyone's account address with the rewards distributed pro-rata with a withdrawal option at any time. Rick explains that this “Pool 0” liquidity will not be used for anything, unlike other liquidity pools that allow users to swap, borrow, lend, etc. He wrote,
“It’s admittedly a useless capital exercise. Think of it as kind of like a Coinbase Earn quiz. The minimum threshold to get free assets.”
The working liquidity pools
Apart from the “Pool 0” rewards, users can also provide liquidity to the BAC-DAI pool on Uniswap v2 to earn BAS rewards. This pool, named “BAS Pool 1,” will distribute 750,000 BAS shares in rewards to liquidity providers, “starting with 6250 Basis Shares and decreases 75% after every 30 days”.
Additionally, Basis Shares will also be distributed to liquidity providers of the Basis Share (BAS) – DAI pair on Uniswap v2. A total of 250,000 BAS will be distributed over the next year to LPs, with an equal number of BAS tokens released daily.
The Basis Cash seigniorage
Now that we have accustomed ourselves to the distribution process of Basis Cash let’s understand how exactly the protocol works. As explained above, BAC is a stablecoin that pegs to the dollar with a set algorithm to maintain the price at $1. Here’s how the protocol does it.
The Basis Cash protocol consists of three main assets, namely Basis Cash (BAC), Basis Share (BAS), and Basis Bond. The latter two are vital in keeping the former at a stable price of $1. There are two scenarios explained below:
When BAC price dips below $1
If the price is below $1, users can use the opportunity to buy Basis Bonds, which are redeemable for 1 Basis Cash in the future. The bonds ratio 1:1, with BAC allowing users to redeem their bonds for the stablecoin at any time. The BAC tokens collected from the purchase are burned, setting a lower supply in the ecosystem.
However, only one condition has to be met; Basis bonds are only redeemable when BAC's price is above $1. Morty writes,
“This prevents bondholders from cutting their losses on redemptions and creating unnecessary increases in supply.”
When BAC price exceeds $1
If the price of BAC crosses above the $1 mark, then Basis bondholders will rush to sell their Bonds, which causes a price retracement back to $1. If the price remains above $1 after bond redemptions are complete, the system mints more BAC tokens and distributes them to the BAS holders.
The Treasury mints new BAC tokens seigniorage into the ecosystem to meet the demand of the market. Morty further states,
“This seigniorage is given to the Boardroom, where users can stake Basis Shares and earn daily seigniorage based on the price of Basis Cash.”
A live project in waiting
According to Vfat.tools, an unofficial tracking page of yield farming project shows that the current BAC-DAI pool, as of writing, offers users an APY of 45677.90%, signaling a comeback in the crazy DeFi farming market experienced earlier this year.
Currently, BAC is trading way above its $1-peg, at $634 per token, an effect of the high demand, Rick explained in a Telegram message to Coindesk. This is causing the vast returns currently on yields, but it is expected to reduce as more people join the project. Rick explained,
“In the short term, given one needs to provide liquidity for Basis Cash against Dai to earn Basis Share tokens, liquidity providers looking to farm Basis Share tokens will buy Basis Cash.”
“Farming demand drives initial demand and attendant seigniorage.”
Pear-to-peer insurance market, Cover Protocol, built on Yearn Finance, has also announced the addition of Basis Cash to its covered assets.
— Cover Protocol (@CoverProtocol) November 30, 2020