1Pool depth and exit liquidity
The treasury is larger than the market can absorb. This is the central risk and it is a property of the design, not a temporary condition.
Two separate things are often confused. Net asset value is what the treasury holds. Exit liquidity is what a holder can actually convert a position into, today, at a price near the quoted one. These are different numbers and the second is very much smaller than the first.
A holder has two ways out. They can sell into the trading pool, where the price they receive falls as the size they sell rises — the quoted price applies to the first share sold and to no other. Or they can take the standing bid at backing, which is limited per epoch and drawn from the reserve actually held rather than from net asset value. Neither route can absorb the whole of supply, and the second cannot absorb a large fraction of it in any short period.
It follows that the exits are rationed by speed. In a general withdrawal, holders who move first are paid at something near backing and holders who move later are paid whatever is left. There is no mechanism that prevents this and no mechanism that could; a facility able to pay everyone at backing simultaneously would have to hold the entire net asset value in the reserve asset and would then not be doing anything else.
The worked example below is calculated from the figures on this site. It is not a stress scenario. It is arithmetic on the ordinary state of the protocol.
Chain-level liquidity statistics do not help here. Base holds billions of dollars of stablecoin, but almost none of it is depth in the pool that $BUY trades in. The only number that governs a holder’s exit is the depth of that pool and the size of the reserve, and both are published on this site.
Worked example — capacity of the standing bid
| Measure | Value |
|---|---|
| Shares in issue | 1,284,306.42 BUY |
| Total claim on the treasury at backing | 14,975,295 USDC |
| Reserve available to meet the bid | 1,684,000 USDC |
| Share of supply the reserve could absorbThis is the number that matters. The rest of the treasury is not in a form that can meet a bid today. | 11.25% |
| Per-epoch limit | 240,000 USDC |
| Epochs to exhaust the reserveAssuming the limit is taken in full every epoch, and that nothing is added to the reserve in the meantime. | 7 (2 days) |
| Protocol-owned liquidityDepth the protocol owns in the trading pool. A sale larger than a small fraction of this moves the price against the seller. | 3,182,400 USDC |
Read the fourth row against the first. The standing bid can take in about 11.2% of the shares in issue before the reserve that funds it is gone, and the per-epoch limit means even that takes roughly 2 days. Everyone else sells into the pool, at whatever the pool pays.
Illustrative — the contracts are not deployed. Every figure on this page is a worked example, fixed at , and none of it is a live reading. Nothing here is an offer, a forecast, or a record of past performance.
2The floor does not hold the market price up
The standing bid is an offer to pay backing per share. It is not a commitment to keep the market price at or above backing, and the market price is regularly below it.
A share trades wherever buyers and sellers meet. If sellers are numerous and the per-epoch limit is reached, the remaining sellers go to the open market and the price goes where their selling takes it. The floor determines what the protocol pays; it determines nothing about what anyone else pays.
A share bought above backing carries the difference as an immediate unrealised loss against the floor. If backing is eleven dollars and the market asks fifteen, four dollars of that price is a claim on future subscription activity that may not occur.
3The dividend programme is dilution, not income
The rebase issues new shares and distributes them among depositors. It does not add anything to the treasury. A depositor’s balance rises; the treasury behind each share does not.
The published annual rate is an annualisation of the current epoch’s rate. It assumes the rate persists for a year. At every protocol of this design, it has not. Treating it as a yield, or discounting a purchase price against it, is a mistake that the number’s presentation actively invites, which is why it is stated plainly here.
A holder who does not deposit is diluted by those who do. The programme therefore compels participation from anyone who would otherwise simply hold, which is a cost imposed on them rather than a benefit conferred.
4Immutability means defects are permanent
The contracts cannot be paused, upgraded or parameterised after deployment. If they contain a defect, it cannot be fixed. If a parameter is badly chosen, it stays badly chosen for as long as the protocol exists.
An audit reduces the probability of a defect. It does not eliminate it, and no audit has ever been shown to. In the event of a defect that drains the reserve, there is no administrator to halt it, no multisig to intervene, and no route to recovery.
We regard this as the correct trade, for the reason given in the prospectus. A holder who regards it as the wrong trade is not making an error, and should not participate.
5The reserve asset can fail
The reserve is held principally in USDC, which is a liability of a private issuer and depends on that issuer remaining solvent, remaining permitted to operate, and continuing to honour redemption. USDC traded materially below a dollar in March 2023. It recovered; the point is that it moved.
If the reserve asset breaks its peg, backing per share falls with it and the standing bid is met in an asset worth less than a dollar. The protocol has no ability to switch reserve asset, because it has no ability to change anything.
Holdings other than the reserve asset carry ordinary market risk and are marked at whatever the on-chain price source returns. A sharp fall in those holdings lowers net asset value and therefore lowers the floor. The floor moves.
6The mechanism has a known end state
Backing per share rises only when subscriptions clear above backing. Subscriptions clear above backing only when the market price is above backing. The market price is above backing when participants expect further subscription activity.
That is a loop, and it runs in both directions. When the market price falls to backing, subscription stops. When subscription stops, the reserve stops growing. When the reserve stops growing, the reason to pay a premium goes, and the price does not recover on its own.
The protocol continues to function in that state: the standing bid still stands, the reserve is still there, and holders can still exit at backing subject to the limits described above. It simply stops appreciating. Most protocols of this design have reached that state and remained in it.
7Concentration
Early participants hold a larger share of supply than later ones, and there is no lock-up preventing them from taking the standing bid. A concentrated holder taking the bid consumes the per-epoch limit and leaves nothing for anyone else that epoch.
The distribution of holdings is public and can be read from the token contract. It is not published here as a summary statistic, because a summary statistic is easy to make flattering and the underlying data is available to anyone.
8There is no recourse
There is no company, no fund, no manager, no custodian and no regulator. $BUY is not a security in any jurisdiction that has said so, is not insured, and is not covered by any compensation scheme.
If the protocol fails, there is nobody to sue and nothing to claim against. The language of fund management is used throughout this site because it describes the mechanism accurately. It does not describe the protections.
9Network and sequencer
Base is an optimistic rollup operated by a centralised sequencer. If the sequencer halts or censors, transactions may not be included, and the standing bid cannot be taken during that period even though it remains available in the contract.
A halt of that kind has occurred on Base before. Withdrawal to Ethereum through the canonical bridge is subject to the standard challenge period, which is measured in days and is not an escape route in a fast-moving market.