GM!

Welcome to another article exploring the mechanics behind BSN - the most unbreakable reserve currency in DeFi.

The BSN price on Uniswap V3 is defended by a bidwall mechanism that has never been seen before.

The BSN token market-makes itself on Uniswap V3 and concentrates all of its buy-side liquidity across 1bps ($0.0001). This bidwall provides a “price floor” for all BSN token holders. Essentially, when the price hits the bidwall, it cannot decrease any further than $0.0001 while every remaining token can be redeemed at that price.

💡 Example A: BSN is trading at a 5M market cap. The BSN token price is $5 (meaning total supply is 1M tokens), and the bidwall has $2M in USDC. With a total supply of 1M and with $2M USDC in reserve assets, the bidwall can be set at the price of $2 (well technically, from $1.9999 - $2) and provide full redemption at that price for 100% of tokens.

In short, all BSN tokens can be redeemed at or above their backing price (which programmatically rises) at anytime, with no limits.

BSN is fully backed by liquid assets at its backing price, and therefore the backing price is the redemption price.

On previous iterations of self-market making Uniswap V3 tokens that employed bidwall strategies such as GIZA, tokens were highly liquid within the bidwall and the wall itself was a range and not a flat floor. These two issues complemented one another and led to a deep and 1000bps-wide bidwall that the price sunk into and had great difficulty escaping due to a perpetual uphill battle against massive and tightly concentrated sell-side liquidity within that range.

💡 Example B: Let’s say that $100K USD worth of tokens are sold into this bidwall. If the bidwall ranges from $0.60 and $0.80, and there is $1M of liquidity in the bidwall, then this sell would reduce the market price from the top of the bidwall ($0.80) to $0.72. Now at $0.72, in order to return the market price to $0.80 thereby breaking back above the bidwall, there must be $100K USD in net buy volume.

With this new bidwall design, recurrence of these issues is impossible. Here’s how:

Say $100K USD worth of BSN tokens (and let’s say that equals 1M of BSN tokens) are sold into the bidwall. The solution to the first issue is that the price won’t face any decline (beyond $0.0001) due to the highly concentrated nature of the bidwall. While the previous iteration of the bidwall was quite thick, being 1000 ticks wide, this new model is only a single tick in width - meaning that all liquidity in the bidwall is concentrated across a range that is only $0.0001 wide. In Example A, redemption would thus occur for every holder between $2 and $1.9999. The solution to the second issue, of the price being unable to escape the bidwall range because of the amount of tokens added to liquidity by the seller, is solved by a new and innovative deflationary mechanism introduced by BSN. With this deflationary mechanism, every time tokens are sold into the bidwall and thereby redeemed for the underlying reserves, those tokens are burnt from supply permanently. This means that not only will the price return above the bidwall with a single buy (of any size - even $0.01!), but the market price of BSN will also theoretically increase in value more rapidly after every redemption into the bidwall because of smaller overall BSN supply.

💡 Example C: Let’s say that 1M BSN tokens, worth $100K, are sold into this new bidwall. Instead of all of those 1M tokens needing to later be bought back with $100K USD in order to leave the bidwall, all 1M tokens are burnt entirely, leaving no sell-side liquidity above the market price within the bidwall. If the next transaction purchases even just 1 single BSN, the price will return above the bidwall and BSN will be exposed to volatile upside once more. In fact, there can be millions of dollars worth of consecutive sells into the bidwall, but all it takes is just one buy - even if it’s just $1 - to break out back into the ask wall.

BSN’s bidwall “reorganizes” upwards on every sell and every bond sale that produces enough buy-side liquidity (either through sell tax or bond sale proceeds) to move the bidwall upwards by the smallest possible unit. This means that the flat redemption value per token (aka the backing price) is perpetually increasing, unlike previous bidwall iterations that reorganized infrequently.

JIT Liquidity is another key element to maximizing the bidwall’s efficiency and growth. As the bidwall perpetually increases in size, holders are insured from downside by the presence of a flat redemption price. But whenever the market price is above the backing price (the top of the bid wall), there is by definition a premium between the market price and the backing price. In order to constrain this premium, Basin offers Zap Bonds which go directly into buy-side liquidity, raising the bidwall as much as possible with each bond sale. This constraint is maintained by using idle buy-side liquidity to create demand for BSN through real yield. In other words, when liquidity bidwall isn’t needed, it’s perpetually generating yield. The Safety Range describes a range above the bidwall in which the largest sell possible (the token balance of the largest BSN holder) would be enough to send the market price into the bidwall. When the market price is within the Safety Range, all bidwall assets must be present within the liquidity pool to guarantee full floor price redemption. However, when the market price is safely outside of the Safety Range, the bidwall liquidity is no longer needed by regular transactions. As such, the excess liquid assets are automatically displaced from the liquidity pool into an automated and principal-protected yield generation strategy. Yield generated from this strategy is partially compounded into further bidwall growth, but mostly paid out to holders of xBSN (Staked BSN) in ETH or stablecoins with the option to compound.

For a protocol like Basin, and many others who own their own liquidity, JIT liquidity on Uniswap V3 combined with yield-bearing strategies are a tremendously powerful new primitive. Manipulating buy-side liquidity depth, just as market-makers do on centralized exchanges, can protect the token from downside while making upside momentum easier to maintain. Automatically manipulating the liquidity in certain ranges makes it possible to repurpose ETH, USDC, or whatever asset is in liquidity into another source of income for your protocol. Recycling the assets in liquidity is an excellent way to boost capital efficiency and provide additional value to holders for any protocol that prioritizes maximizing their liquidity (like we do!)

Thanks for reading!