Basilisk

Last updated: September 5th, 2021 10:05 PM CDT

The Technology

Basilisk is a liquidity bootstrapping protocol (LBP) and it is the Kusama-native canary network for HydraDX. The term “bootstrapping” comes from the mantra “pull yourself up by the bootstraps,” which references an impossible task of lifting your body up by pulling on your shoe strings. However the bootstrapping that Basilisk intends to do is nowhere near impossible. Their plan is to create a diverse set of asset pools where users can earn rewards by contributing liquidity so that other users can leverage that liquidity to swap assets. Bootstrapping in this case simply references the fact that no liquidity will come from a central source; the incentives that Basilisk will code into their protocol will motivate a decentralized network of individuals to provide liquidity for the network.

If you are unfamiliar with what a liquidity pool is, it is a pool containing two different assets . For example, Uniswap is a popular swapping protocol and the top pool there is the USDC/ETH pair (USDC always = $1, i.e. it is a stablecoin). As of writing this there are 223.73 million USDC locked in the pool along with 34,010 ETH. This implies that since the pool’s inception, more people have swapped their USDC for ETH because 223.71 million / 34,010 = $6,578.36, far above ETH’s market price. Liquidity providers set a “price” range where their liquidity may be used by the protocol so even though the overall pool has more USDC, the available liquidity makes swapping ETH for USDC costly and swapping USDC for ETH profitable, take a look:

The consequence of this is that users will swap more USDC for ETH than they will visa-versa thus bringing the available liquidity to a market equilibrium.

Basilisk will provide this kind of protocol to the Kusama relay-chain allowing users to swap KSM and other parachain assets to facilitate better price discovery for the entire ecosystem. The way this will be achieved is through something called an automated market maker (AMM) which is an algorithm that adjusts swapping rates to stabilize prices while incentivizing users to add tokens to highly demanded pools ensuring that liquidity demand is met. There are a few different types of algorithms that can accomplish this and Basilisk will integrate their own LBP that is similar to Balancer’s along with XYK (X*Y = K market maker). It is not important to know exactly how these algorithms calculate their adjustments but if you are curious, here is an article describing the XYK model.

The idea is that by implementing various AMM models Basilisk will achieve high-resolution price discovery through the forces of arbitrage. Once configured and launched, these AMMs will attract users who will bootstrap the pools that will facilitate cheap and fast trading of Kusama-native assets.

While Basilisk claims they will support an NFT market it is not clear exactly what kind of NFTs they will support or how they will support them. It is still a young project and their documentation requires a lot of attention, but in time I would not be surprised if we see exciting integrations with RMRK native markets like Singular and Kodadot.

The BSX Token

One-hundred billion BSX tokens will power the Basilisk ecosystem, securing its blockchain and giving users access to low trading fees, lower over-collateralization ratios, and apparently swag as well. Like other parachain tokens BSX will be used to manage governance to move the technology in the direction that token holders decide. The initial supply will not include all 100 billion BSX but will be rolled-out in a controlled manner. Here’s a diagram of the 2-year unlocking projection:

One thing that sets the BSX token apart from other parachain tokens is their 1% airdrop to all KSM holders which will encourage everyone in the ecosystem to participate in swapping assets. This airdrop is an excellent strategy especially for a project that needs to bootstrap all of its liquidity pools. Think of it like a casino giving its first-time patrons $100 in chips, except Basilisk isn’t trying to take your money. They are only trying to get you to trade it on their application.

The token supply projection might change since it does not appear to include a perpetuity fund in order to secure a parachain slot after their first one expires. Perhaps Basilisk already has a plan for securing future slots, but I could not find anything in their documentation that says anything of the sort.

The Crowdloan Reward

  • 15,000,000,000 BSX + 56,873,469 HDX maximum (HydraDX’s utility token)
  • BSX:KSM ratio TBD
  • 222,222 KSM crowdloan cap
  • HDX is rewarded to cover part of the opportunity cost from locking your KSM
  • Vested linearly from 2 weeks after winning a slot to 1 week before slot expiry

Basilisk is offering crowdloan participants HDX on top of BSX to cover up to 30% of the staking trade-off from locking their KSM. The proportion of the opportunity cost covered depends on Basilisk’s lead in the auction. The maximum 30% is promised until the crowdloan takes a greater than 15% lead during the auction at which point it decreases by 5 percent points per percent-point above a 15% lead in the auction, hitting a floor of 5% of the opportunity cost covered. So if Basilisk wins the auction with a 17% lead, the percentage of the opportunity cost covered would be:

30-[(17-15)*5] = 20%.

I’m not sure exactly how Basilisk is going to calculate this figure in terms of HDX since KSM is always moving in price and staking returns also change with time, but they are basing it off the assumption that 1 HDX = $0.08059. We will just have to trust they will give an equitable distribution because it would take a data wizard to calculate the correct figure.

Basilisk will distribute all 15 billion BSX no matter what their crowdloan finishes at, so the amount of BSX per KSM contributed is yet to be determined. At the time of writing this their crowdloan is ~63,000 KSM. Here’s a table of potential outcomes:

These figures are highly speculative so I wouldn’t bank on them, but even at a penny per BSX the PLO could be an excellent reward. I omitted the staking trade-off column because the HDX compensation is so uncertain that I did not want to set any misleading expectations.

Overall Evaluation

Risk: Medium

Reward: Medium

Novelty: Low

Utility: High

Basilisk will certainly be a valuable addition to the Kusama ecosystem but there are a few things that concern me about the project. First of all, their documentation is too sparse for my comfort and they definitely lean into their brand a little too much. They refer to the technology as the “snek” to ride meme culture and they use terminology like “sacrifice” when referring to people locking up their KSM. Definitely humorous but come on, this is a serious financial product that you’re attempting to build. Also, their NFT implementation is vague at best. For those reasons I give it a medium risk ranking. The reward is acceptable and could prove to be quite profitable which is why it lands in the middle of the road compared to other PLOs. However, to be perfectly honest, it’s not a very creative project. Liquidity pools have been around for years and there are already two defi parachains in the Kusama ecosystem who plan on implementing AMMs. Nonetheless, there can never be too much defi competition and I believe Basilisk will be used and valued by many.

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