When the Basis Cash protocol is in contraction, you can buy Basis Bonds (BAB) at a discount. This means for each 1 BAB worth of bonds, you’ll pay something less than 1 BAC, and later be able to redeem them for 1 BAC, when the protocol is again in expansion.
To pay for Basis Bonds, you are removing Basis Cash from the total supply, which should have the effect of increasing its market price back towards a value of 1 DAI.
Purchasing bonds can be very profitable. For example, if you bought 1 BAB of coupons for 0.75 BAC, and redeemed them for 1 BAC in a week, that’s an annualized return of roughly 1,400%!
Basis Bonds are bought and redeemed on the Bonds screen of the Basis Cash app. The user interface is so simple that few instructions here are necessary—you buy on the left side of the screen, and redeem on the right!
For the curious:
The Basis Cash system maintains a “Treasury” that holds Basis Cash (BAC) to pay to redeeming Basis Bond holders. After each epoch during expansion, the protocol checks the balance of the Treasury and does the following:
If the balance is greater than 1,000 BAC, the assumption is made that there are no Basis Bond holders wishing to redeem their bonds—otherwise the balance wouldn’t be greater than 1,000 BAC!—and so the full expansion amount is paid to the BAS stakers in the Boardroom.
If the balance is less than 1,000 BAC, the Treasury is replenished with BAC from the new expansion to the current amount of outstanding Bonds, with any excess then paid to the BAS stakers in the Boardroom. (If the amount of outstanding Bonds is greater than the current expansion, then the full expansion goes to the Treasury.)
Make sense? The takeaway is simply that Basis Bond holders, like in traditional organizations, are paid before equity holders.
Now that you’ve learned all about earning Basis Cash and Basis Shares, the last thing to learn about is governance.
Let’s learn about participating in Basis Cash Governance! →