Unlike ESD, the Basis protocol has three types of tokens: the stablecoin BAC (Basis Cash), BAB (Basis Bond), and BAS (Basis Share), corresponding to the US dollar, bonds, and stocks, respectively.

The primary roles of BAS and BAB are to pull the price of BAC back to $1. If compared to the ESD protocol, BAS is equivalent to "staked ESD" in the ESD protocol, which can receive rewards from newly minted stablecoins; BAB, on the other hand, is similar to "Coupons" in the ESD protocol, offering the potential for premium returns.

How exactly do these three tokens achieve stability?

Basis Cash operates by simulating the central bank's open market operations: when there is excessive liquidity in the market (too much money), it sells bonds to withdraw currency; when there is insufficient liquidity in the market, it buys bonds to inject currency, thereby regulating the money supply.

When the price of BAC falls below $1, it indicates an excess money supply in the market. The algorithm then sells BAB to users to reduce market liquidity.

When the price of BAC rises above $1, it indicates a shortage of money supply in the market. The algorithm then repurchases BAB from users to inject liquidity into the market. Of course, if repurchasing BAB still fails to address the money supply shortage, the protocol will directly mint new stablecoins, which are distributed as dividends to BAS holders.

William, Chief Researcher at OKEx Research, analyzed this and pointed out that if rebase-based stablecoins like AMPL achieve equilibrium in stablecoin prices through the brute-force method of increasing or decreasing the money supply, then stablecoins like Basis Cash, which rely on market operations to achieve price equilibrium, appear much more moderate and conducive to the development of the stablecoin market. This is also why modern central banks do not directly issue more currency but instead use open market operations to adjust the money supply—because the former is crude and harmful to the economy, while the latter is less damaging. Of course, modern central banking systems already possess multiple monetary tools, far beyond just "adjusting the money supply" and "open market operations," and these two tools alone cannot guarantee the smooth implementation of monetary policy. Current algorithmic stablecoins are still too idealized and rudimentary, making them unsustainable. At the very least, they cannot ensure that the price of algorithmic stablecoins remains truly stable, and volatility will still be significant.