Guaranteed Floor Price
Last updated
Last updated
One of the most recognizable features of a Baseline Token is the distinctive yellow line on the chart, representing the bToken's Baseline Value (BLV): the guaranteed minimum price of a Baseline token.
The BLV is set by reserving enough liquidity in the pool to buy back the entire floating supply of the token. Put simply, the BLV is the price at which the last token could be sold if all holders exit.
This makes the BLV a directly redeemable value on the public market, unlike the "backing" commonly found in other protocols. Baseline uses protocol-owned liquidity managed by smart contracts within Uniswap V3 concentrated positions to guarantee a bToken's BLV. This means the BLV can never decrease when priced against the backed asset.
BLV price is denominated in the underlying liquidity token, called the "reserve asset". For example, if the bToken like MACHI token is paired with USDB, its BLV is priced in USD, not ETH. Therefore, if ETH's price falls against USD, the bToken's BLV stays the same in USD.
The BLV of a Baseline Token doesn't just remain stable; it actually increases over time. This growth occurs because, with each trade, a small liquidity surplus is accrued and added to the floor. As more bTokens are bought and sold, this surplus continues to grow, permanently raising the BLV.
This mechanism ensures that the BLV is not only a guaranteed minimum price but also a price that gradually increases over time. The more trading activity there is, the more liquidity accumulates, which in turn strengthens the BLV. This continuous upward adjustment of the BLV provides ongoing value to bToken holders, ensuring that their tokens are backed by an ever-growing reserve.
From a trader's perspective, the increasing BLV is crucial for several reasons:
Known Maximum Downside: When entering a trade, the BLV gives traders a clear understanding of the maximum potential loss. Since the BLV represents the guaranteed minimum price, traders know that the token's value won't fall below this level when priced against the reserve asset, providing a built-in safety net.
Gradual Value Appreciation: As the BLV rises over time due to trading activity, the downside risk continues to decrease. This means that holding onto bTokens not only carries less risk but also becomes more valuable as the BLV increases, making it a more attractive long-term investment.
Market Confidence: The upward trajectory of the BLV fosters confidence in the market. Traders can be more assured that their investments are backed by a growing reserve, reducing the fear of sudden, drastic losses and encouraging more participation in the market.
TLDR: the rising BLV provides traders with a known safety net, the potential for value appreciation, and greater confidence in the stability and reliability of their investment.
