Frequently Asked Questions

  • Could a crisis of confidence cause a death spiral in the system?

    The Basis mechanism is designed to be resistant to death spirals and positive feedback loops. Our stability analysis, which we plan to make public, explores this question from many angles. Here, we discuss what we find to be one of the most common misconceptions around the way we believe the Basis system would work in a crisis of confidence.

  • How would the system respond to someone maliciously trying to break the peg (aka a Soros attack)?

    Basis is designed to make a Soros attack unviable. In fact, Stan Druckenmiller, a lead architect of George Soros’ 1992 short of the British pound, is an investor in the Basis system.

  • Can a system be stable without being backed by tangible assets?

    Yes, we believe so. In fact, we believe the existing monetary system is one of the best examples.

    After World War II, the world adopted a new monetary system known as the Bretton Woods system. At a high level, the system specified that the US would back its currency with gold, and that every other country would keep USD as its reserve. As long as the USD maintained its backing to gold, every other country’s currency would also be implicitly backed by gold.

  • Why is the system designed to distribute new Basis to share token holders instead of Basis holders?

    We find that making distributions to existing Basis-holders would compromise the system's stability. In particular, we believe this puts a speculative component into the “stable” token and creates instability.

  • What would happen if Basis demand experienced zero growth forever?

    Some people have the concern that Basis relies on nonzero growth. In particular, the criticism is that if the growth rate of the economy ever becomes zero long-term, then the bond queue would fill, causing the system to chronically de-peg and re-peg (recall that it should be capable of re-pegging because bonds expire).

  • Could share token holders profit by manipulating the price of Basis?

    We find this unlikely. Some argue that share token holders could earn extra, “undeserved” Basis by artificially pumping up Basis demand. But if share token holders were to try to earn extra Basis by pulling off this attack, we believe that all they’d be doing is pulling forward future demand. Specifically, we believe that the extra Basis that share token holders would earn from this attack would draw directly from their future earnings.

  • Could share token holders profit by withholding their distributions?

    We find this unlikely. In this attack, share token holders would withhold their Basis distributions in an attempt to artificially inflate Basis price and earn extra Basis distributions. However, just like for the attack involving the manipulation of Basis price, we believe that artificially inflating Basis price to earn extra distributions would only borrow from the shareholder’s future earnings. As a result, we believe this attack would be just as unappealing as the other more general attack in which a shareholder could use a variety of other tools to artificially inflate Basis price.