Overview

Understanding the BaseCase Protocol fundamentals

This page covers: What BaseCase is, why it exists, and how it solves the prediction market liquidity problem.

The Liquidity Problem

Traditional prediction markets face a fundamental bootstrapping challenge:

Problem	Impact
💰 Liquidity Required	Markets need initial capital to enable trading
🔒 Capital Lock-up	Market makers must commit funds as counterparty
👤 Creator Burden	Market creators bear the cost of liquidity provision
🚫 Limited Access	Only well-capitalized entities can create markets

This creates a permissioned system despite the permissionless nature of blockchain infrastructure.

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The BaseCase Solution

BaseCase introduces a two-phase market lifecycle that separates liquidity bootstrapping from mature trading.

Phase 1: Shadow Liquidity (Bonding)

During bootstrap, the protocol operates a virtual CPMM:

Virtual Reserves

Mathematical simulation of token reserves without real asset backing. Markets start with 100,000 units of virtual YES and NO tokens.

Initial State:
├── virtualYES: 100,000
├── virtualNO: 100,000
├── k = 10,000,000,000
└── price: 50% / 50%

Shadow Shares

USDC Vault

Phase 2: Order Book Trading

Upon reaching 100% solvency, markets graduate:

Transition Step	Description
Token Minting	Protocol mints ERC-20 YES and NO outcome tokens
Distribution	Tokens distributed to shadow share holders
Order Book Opens	Limit and market orders become available
Lower Fees	Trading fees drop from 2% to 0.1%

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Solvency Model

The protocol's core invariant ensures winners can always be paid:

$$\text{Solvency} = \frac{\text{VaultBalance}}{\max(\text{TotalShadowYES}, \text{TotalShadowNO})}$$

Graduation occurs when Solvency ≥ 100%, meaning the vault can cover the maximum possible payout regardless of outcome.

Why 100%?

• If YES wins → all YES holders get $1 per share

• If NO wins → all NO holders get $1 per share

• Vault must cover whichever side is larger

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Technical Specifications

Parameter	Value	Rationale
Virtual Reserve	100,000 units	Calibrated for ~110% max solvency
Trade Fee	2%	Insurance buffer for solvency margin
Graduation Fee	2%	Protocol revenue and creator incentive
Post-Graduation Fee	0.1%	Competitive with centralized exchanges
Creator Share	50%	Strong incentive for market creation

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Key Invariants

These properties are always maintained by the protocol:

🔐 Solvency Guarantee

Vault balance always exceeds maximum payout at graduation. The CPMM mechanics naturally accumulate fees that provide a safety buffer.

⚖️ Price Conservation

YES + NO prices always equal 100%. This is enforced by the pricing formula: Price(YES) = virtualNO / (virtualYES + virtualNO).

📈 Monotonic Vault Growth

The vault balance strictly increases with each purchase. Sells reduce the vault proportionally but cannot drain it below solvency.

🔄 CPMM Conservation

virtualYES × virtualNO = k is maintained across all trades, ensuring consistent and predictable pricing.

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Next Steps

🚀 Quick Start

Get trading in 5 minutes

🌊 Shadow Liquidity Deep Dive

Understand the virtual AMM