@unbanksy @ind-igo @hohmward are working on something interesting at @baselinemarkets – specifically rebalancing LPs for better price discovery, floor management – basically something a private MM would do for your big token.

however, i do have some questions:
1. rebalancing LPs -> loosing money due to IL, and IL in concentrated positions is crazy – how is that accounted? wouldn't you need extra supply of both assets on each side for rebalancing when the price goes steadily up or down? if so, where those come from? who "eats" the loss?
2. how "far" this rebalance can be supported?
3. do you hedge IL anyhow?
4. are there any simulations publicly available?
5. i know uniswap is the center of liquidity distribution, but wouldn't a CSMM dex be more suitable for such?

i might be missing something as i obviously haven't read the docs fully – too much to read

A user asked some great questions about @baselinemarkets and wanted to take the time to answer publicly.

I think Baseline is one of the coolest systems being built in crypto, but I don't think many understand wtf we're doing.

So I'll start with a bit of context.

The concept of IL is a bit incomplete on its own. You have to look at it as "inventory risk", how much risk are you taking on for holding this position vs holding spot. Further, it is a very profit-seeking human way of looking at LPing. In context of the BMM, is not only a market maker, it is also the issuer and originator of the asset. It is *completely fine* holding the token forever, therefore, 0 inventory risk. Its a smart contract, with its sole job to ensure the health of the market, via providing liquidity in the pool, lending, and supporting price.

so to answer the questions:

Programmatic Liquidity. Builder of @yesdotmoney with 1 billion tokens coming soon

1: there is no IL to the protocol. The entire token supply originates in the BMM, it calculates a BLV based on the reserves it has at any moment, which it deems as its price that it is willing to buyback the entire supply at. Any selling of the token above BLV is "profitable" to the system, no matter what. It will also willingly hold on to the tokens forever, until someone buys it at a price it sets on its own. There's more nuance here but this is the simplest way to look at it.

2. There are bounds of when the BMM is willing to rebalance. If the rebalance causes us to be in a state we do not like, then we simply do not rebalance. Again, there's no inventory risk, so BMM is totally fine waiting.

3. Nope. However, we are making improvements to the system constantly to make it more profitable. Its not perfect but we get closer with each iteration.

The fundamental insight for Baseline is that a smart contract given protocol-owned liquidity can behave more like a central bank for a token than a traditional market maker or a pool2 LP. Its incentives are completely flipped from what we know; It can act selflessly to support the traders and holders of the market.

What we've built so far is all in service of exploring this space, to find a better alternative to the toxic dynamic of most crypto markets.

Follow along at @baselinemarkets

4. Not yet. Can work on putting this out some time in the future. We're a small team though with a lot to do.

5. Funny you mention this. We started this project as a toy during the 2023 bear market, as something called Jimbo protocol, that was built on Trader Joe's liquidity book (a CSMM). The system got hacked, and due to various reasons, we decided to port the system to Uniswap. This is how Baseline was born. Your intuition is correct, the system works a bit simpler in a CSMM, but uniswap also has its unique advantages. Just tradeoffs in the end.