Overview
Basis Cash launched in November 2020 as an anonymous team's implementation of the Basis protocol design — an algorithmic stablecoin that the original Basis project (Intangible Labs) had abandoned in 2018 after raising $133 million but concluding that its bond tokens would be classified as securities by the SEC.
The protocol used a three-token seigniorage model:
- BAC (Basis Cash): The stablecoin, targeting a $1 peg
- BAS (Basis Shares): Seigniorage shares that receive newly minted BAC when the price is above $1
- BAB (Basis Bonds): Purchased at a discount when BAC is below $1, redeemable for BAC when the peg recovers
The mechanism was elegant in theory: when BAC trades above $1, the protocol mints new BAC and distributes it to BAS holders (expanding supply to push price down). When BAC trades below $1, users buy BAB bonds at a discount, removing BAC from circulation (contracting supply to push price up). This is the textbook seigniorage shares model from Robert Sams' 2014 paper.
In practice, Basis Cash failed completely. BAC lost its peg within weeks of launch, trading well below $1 for extended periods. The bond mechanism failed to create sufficient demand to restore the peg. BAS holders stopped receiving seigniorage, killing demand for shares. The system entered a reflexive doom loop: below-peg BAC → no seigniorage → BAS worthless → no confidence → BAC stays below peg. By early 2021, Basis Cash was effectively dead.
Peg Stability
BAC never maintained a stable peg. After a brief initial period above $1 (driven by speculative farming demand), BAC fell below its peg and never sustainably recovered. The seigniorage mechanism was insufficient to counteract selling pressure. The fundamental problem: the only thing backing BAC's return to $1 was the belief that it would return to $1. Once that belief broke, no mechanism could restore it. The bond system required buyers willing to bet on peg recovery — but rational buyers won't buy bonds for a stablecoin in a death spiral. Score: 0 — total peg failure.
Collateralization
BAC had zero collateral. It was a purely algorithmic stablecoin — no USDC, no ETH, no real assets backing each BAC token. The "backing" was entirely the protocol's algorithmic mechanism and market participants' belief in future seigniorage. When confidence evaporated, there was literally nothing backing the token. This is the fundamental weakness of pure algorithmic stablecoins: in a crisis, zero collateral means zero floor. Partial-collateral designs (like Frax) learned from Basis Cash's failure.
Security
The smart contracts themselves functioned as designed. Basis Cash was not exploited or hacked — the contracts correctly implemented the seigniorage mechanism, minting, redemption, and bond issuance. The protocol's failure was economic, not technical. The codebase was open-source and received community review. In a cruel irony, the security was fine — the contracts faithfully executed a flawed economic design.
Decentralization
Basis Cash was launched by an anonymous team and operated permissionlessly on Ethereum. Anyone could mint, redeem, buy bonds, or stake shares. Governance was minimal — the protocol was designed to run autonomously. The anonymous team provided initial development but the protocol was intended to be self-governing. This gives reasonable decentralization marks, though the anonymous team's decisions (parameter choices, launch conditions) influenced the outcome.
Adoption
Basis Cash attracted significant initial attention during DeFi Summer's tail end (late 2020). BAC and BAS farming pools drew substantial capital, and the project inspired dozens of forks across multiple chains (the "algo stablecoin" craze of early 2021). Peak TVL was meaningful. However, this adoption was entirely driven by yield farming incentives and speculation — there was zero organic demand for BAC as a stablecoin for actual transactions. When farming yields collapsed alongside the peg, adoption went to zero.
Risk Factors
- DEAD: Protocol is completely defunct, all tokens effectively worthless
- Zero collateral: Nothing backing BAC except algorithmic mechanisms that failed
- Peg failure: BAC never maintained a sustainable peg
- Death spiral: Reflexive doom loop between BAC price, BAS demand, and bond purchases
- Theoretical design: Seigniorage shares model has no successful real-world implementation
- Speculative adoption: All usage driven by farming yields, not genuine stablecoin demand
- Spawned dangerous forks: Dozens of Basis Cash forks repeated the failure across chains
Conclusion
Basis Cash is one of the most important failed experiments in DeFi history. It proved conclusively that the pure seigniorage shares model — an elegant theoretical construct from academic papers — does not work in practice. The mechanism requires participants to act against their rational self-interest during crises: buying bonds for a failing stablecoin, holding shares during contractions, maintaining confidence when the peg is broken. Real markets don't work that way. Basis Cash's failure (alongside Empty Set Dollar, IRON/TITAN, and ultimately Terra/UST) demonstrated that you cannot algorithmically create money from nothing. The 1.2 score reflects a dead protocol whose only remaining value is as a case study. Every serious stablecoin researcher should study Basis Cash's failure.