Backing reserves use the [Baseline Value (BLV)](/docs/how-it-works/blv) to determine how much reserves to allocate for a given circulating supply:
$$
y_{backing} = P_{blv} \cdot c
$$
Buffer reserves follow a power-law curve based on a ratio between circulating supply and pool inventory:
$$
y_{buffer}\cdot \left(\frac{x}{c}\right)^2 = K
$$
The invariant maintains a constant K by adjusting buffer reserves based on the inventory ratio (x/c):
* **High circulation** (x is small, c is large): Inventory ratio is low, so buffer reserves are large. The pool deploys deep liquidity to facilitate price discovery as tokens trade actively.
* **Low circulation** (x is large, c is small): Inventory ratio is high, so buffer reserves shrink. The pool withdraws liquidity as it absorbs supply, transitioning from price discovery to price protection at the floor.
In other words, the pool automatically scales buffer reserves based on how much supply is circulating, preventing the low-float, high-FDV distortions that plague traditional AMMs.
As trading happens, BMM captures value through the use of [dynamic fees](/docs/how-it-works/fees). This excess value is directed to increasing the BLV.
## Benefits of BMM
* **Token-Owned Liquidity:** Instead of depending on unreliable counterparties, BMM operates programmatically, transparently and in perpetuity.
* **Value Accrual**: By managing its own liquidity, the token captures trading fees as revenue, and grows its own value over time.
* **Efficient Markets**: BMM creates efficient markets by allocating liquidity intelligently based on circulating supply and pool inventory.
# Fees (/docs/how-it-works/fees)
Baseline charges fees on trades that flow back to the token's balance sheet. Every trade increases the floor price, making trading activity directly strengthen the token's value.
## How Fees Work
Fees adapt based on where the trade occurs relative to the floor price:
**On Sells:**
* Fee charged on the **premium portion** (above BLV)
* Higher premiums pay higher fees
* Distressed sells near the floor pay almost nothing
This protects sellers who need to exit during market stress. If you're selling near the floor, you're already taking a loss - the fee structure doesn't punish you further.
**On Buys:**
* Fee charged on the **BLV portion**
* Consistent fee capture on the stable component
This ensures consistent revenue capture regardless of where the price is trading above the floor.
## Benefits of Fees
* **Floor Growth**: Fees accumulate in backing reserves, permanently raising BLV with every trade.
* **Revenue Generation**: The token monetizes its own trading activity instead of paying market makers.
* **Aligned Incentives**: More trading volume means higher floor prices for all holders.
* **Distressed Seller Protection**: Sellers near the floor pay minimal fees - no punishment for exiting during stress.
# Overview (/docs/how-it-works/overview)
At its core, every Baseline token is managed by the [Baseline Market Maker (BMM)](/docs/how-it-works/bmm), a novel AMM that allocates liquidity more intelligently, facilitating better price discovery and creating more efficient token markets.
## Why It Matters
Most markets today use central limit order books to allocate liquidity. This approach requires every project to negotiate deals to bootstrap liquidity, and have professional market makers to actively manage quotes. In a world where most assets are issued digitally at an accelerating pace, this is no longer a viable solution.
Algorithmic Market Makers (AMMs) solve this by replacing active management with a bonding curve, a mathematical formula that quotes prices automatically using pooled liquidity. This approach, however, treats liquidity separate from the token, creating problems:
* **Liquidity mismatch**: Pools quote without knowing float, causing either low-float pumps (too much liquidity) or death spirals (too little liquidity)
* **Value leakage**: Most popular AMMs deploy liquidity even when they should protect reserves
* **Death spirals**: Without awareness of circulating supply, the AMM is unable to backstop negative market reflexivity, causing tokens to trend to zero.
The Baseline Market Maker (BMM) enables Baseline tokens to move beyond limitations of traditional markets to programmable markets that actively grow the economies they represent.
## How It Works
Token-owned liquidity tracks circulating supply ($c$), pool inventory ($x$) and pool reserves ($y$) in a single smart contract. Pool reserves are split into backing reserves and buffer reserves:
$$
y = y_{backing} + y_{buffer}
$$
* **Backing reserves** guarantee every circulating token can be redeemed at the floor price
* **Buffer reserves** enable price discovery above the floor
### Baseline Value (BLV)
[BLV](/docs/how-it-works/blv) is the guaranteed floor price that determines how backing reserves are allocated:
$$
P_{blv} = \frac{y_{backing}}{c}
$$
Equivalently:
$$
y_{backing} = P_{blv} \cdot c
$$
This invariant is enforced programmatically at the smart contract level, ensuring every circulating token can be redeemed at, or above, the floor price. The BLV can never decrease but, through the token's market making operations, the BLV can increase over time.
### The Buffer Invariant
Buffer reserves follow a power-law curve based on inventory ratio:
$$
y_{buffer}\cdot \left(\frac{x}{c}\right)^2 = K
$$
The invariant maintains a constant K by adjusting buffer reserves based on the inventory ratio (x/c):
* High circulation (x is small, c is large): Inventory ratio is low, so buffer reserves are large. The pool deploys deep liquidity to facilitate price discovery as tokens trade actively.
* Low circulation (x is large, c is small): Inventory ratio is high, so buffer reserves shrink. The pool withdraws liquidity as it absorbs supply, transitioning from price discovery to price protection at the floor.
### Liquidity Efficiency
[BMM](/docs/how-it-works/bmm) allocates liquidity based on two ratios that work together.
**Inventory Ratio** measures pool inventory relative to circulating supply:
$$
R_{inventory} = \frac{x}{c}
$$
**Buffer Ratio** measures buffer reserves relative to total reserves in the pool:
$$
R_{buffer} = \frac{y_{buffer}}{y}
$$
Traditional AMMs ignore these relationships, which causes problems in extreme states. BMM, on the other hand, maintains a bounded liquidity efficiency:
$$
L_{efficiency} = R_{buffer} \times R_{inventory}
$$
This ensures liquidity allocation stays efficient across all circulation states. As inventory ratio increases, buffer ratio decreases proportionally, preventing the system from over-allocating liquidity when it should be protecting the floor.
## Example
The chart below shows pool inventory on the x-axis and total reserves on the y-axis. The blue area represents backing reserves required to buyback all circulating supply at the floor. The green area represents buffer reserves available for price discovery.
## Baseline vs Traditional AMMs
Traditional constant-product AMMs (xy=k) have a fundamental limitation: they deploy all reserves for trading with no floor protection. Using the definitions above, in xyk systems, we have:
* $y_{backing} = 0$ (no concept of backing reserves)
* $y_{buffer} = y$ (all reserves used for price discovery)
* $P_{blv} = 0$ (no floor price, tokens can go to zero)
* $L_{efficiency} \rightarrow \infty$ as $c \rightarrow 0$
This creates several problems:
* **Liquidity mismatch**: Pools quote without knowing float, causing either low-float pumps (too much liquidity) or death spirals (too little liquidity)
* **Value leakage**: Reserves get extracted even when the system should be protecting them
* **No defensive mechanism**: Traditional AMMs don't transition from price discovery to price protection
BMM solves this by being circulation-aware and splitting reserves into backing and buffer. As circulation collapses, BMM automatically withdraws buffer liquidity and transitions to price protection, preventing the distortions that plague traditional AMMs.
## Key Concepts
* **[Baseline Value (BLV)](/docs/how-it-works/blv)**: The guaranteed floor price mechanism
* **[Baseline Market Maker (BMM)](/docs/how-it-works/bmm)**: The circulating-supply-aware AMM
* **[Fees](/docs/how-it-works/fees)**: How fees grow the floor price
# What is Baseline? (/docs)
## Tokens as assets, not liabilities
Today, the process of launching a token is risky, expensive, and time-consuming. Instead of building, founders are figuring out smart contracts, negotiating with market makers, and optimizing their tokenomics. As a result, launching a token today causes more problems than it solves.
Every step in a token's lifecycle presents a different obstacle:
1. **Misconfigured setup**: Imbalances in supply and liquidity can result in easy manipulation and ineffective price discovery. That's why over [85% of all tokens](https://x.com/mementoresearch/status/2003089388511604744) end up below their TGE price.
2. **Counterparty risk**: One rogue action from your investors, market makers or exchange can jeopardize your entire project.
3. **Ongoing costs**: Once launched, tokens become a liability as you have to manage operations, liquidity and holder expectations.
Baseline was built to solve these problems by turning a token from a liability that works against projects, into an asset that works for them.
## The end-to-end asset issuance protocol
In Baseline, tokens own their liquidity, and automatically manage it to grow value over time. By using Baseline, founders save time, prevent costly mistakes, and automate the entire token lifecycle. Founders configure launch parameters, and Baseline does the rest: token deployment, liquidity management and value accrual.
* **Token-Owned Liquidity:** Instead of depending on unreliable counterparties, Baseline tokens operate programmatically, transparently and in perpetuity with no cost.
* **Value Accrual:** By managing its own liquidity, the token captures trading fees as revenue, and grows its own value over time.
* **Capital Coordination:** Baseline tokens have built-in utility like real yield, borrowing without interest, and leverage without liquidation.
By rethinking token design from first principles, Baseline tokens move beyond static limitations of traditional equity to programmable assets that actively grow the economies they represent.
[Launch a Token](/docs/launch)
## Beyond zero-sum trading
Traditional token trading is a zero-sum game with binary choices: hold and wait for a pump, or sell to access capital. Baseline gives traders optionality on how to manage and grow their portfolio.
* **Guaranteed floor price:** Baseline establishes the point at which the risk-reward profile is the most asymmetric, backstopping negative market reflexivity.
* **Incentives to hold:** Baseline captures and distributes LP fees to holders, harvesting volume into yield automatically.
* **Access to Capital:** Baseline gives the ability to borrow with no interest and no liquidation risk, making every token a permanent source of liquidity when needed.
With token-owned liquidity, Baseline offers programmatic guarantees that no other assets can, fundamentally rewriting the game theory of token trading.
[Learn More](/docs/holders/trade)
# Launch (/docs/launch)
Baseline supports two launch paths:
1. **Create**: deploy a new token with its own Baseline liquidity pool.
2. **Migrate**: keep the existing token, and migrate liquidity into a Baseline liquidity pool.
Need help or want to brainstorm what's possible with Baseline? Reach out to us in [Discord](https://discord.gg/baseline) or [fill out this form](https://baselineprotocol.notion.site/302c1b2b222b8075b572da3f3799bf3b?pvs=105) and we'll get back to you.
createBToken** on the BFactory contract to deploy the token. The total supply is minted to the caller, and only that caller will be able to create the pool in step 3.
createPool** on the BFactory contract to initialize the Baseline pool and launch the token live.
| Role | Hex | Usage | |
|---|---|---|---|
| Primary (Baselime) | \#BDEE63 | Brand color, buttons, accents, links | |
| Background | #111111 | Page and card backgrounds | |
| Foreground | \#D9D9D9 | Body text | |
| Border | #2A2A2A | Subtle borders and dividers | |
| Muted foreground | \#9CA3AF | Secondary text, captions |
The x-axis represents pool inventory and y-axis represents total reserves. The blue area represents the backing reserves required to buyback circulating supply at the floor. The green area represents the buffer reserves available for price discovery. The sum of both areas equals total reserves.
### Baseline Value (BLV)
The Baseline Value (BLV) is the guaranteed floor price, defined as backing reserves divided by circulating supply:
$$
P_{blv} = \frac{y_{backing}}{c}
$$
BLV is the minimum price at which any holder can exit, regardless of market conditions. Learn more about [BLV](/docs/how-it-works/blv).
### Book Price
The book price is total reserves divided by circulating supply:
$$
P_{book} = \frac{y}{c}
$$
Book price represents the total value backing each circulating token, including both guaranteed floor and speculative buffer.
## Benefits of TOL
* **Transparency**: All liquidity, reserves, and accounting are onchain and verifiable. No off-chain deals or hidden terms.
* **Guarantees**: Every token has a guaranteed floor price (BLV) that can only increase. Holders always have an exit.
* **Programmability**: Liquidity rules are encoded in smart contracts, enabling composability with other DeFi protocols like borrowing and leverage.
* **Revenue-generating**: Trading fees flow to the token's balance sheet, increasing BLV over time. Your token becomes a revenue-generating asset instead of paying market makers to provide liquidity.