The Basis stablecoin project must close operations due to regulatory difficulties. Basis received $133 million in funding as a highly anticipated stablecoin venture.
Closing up shop
According to yesterday’s report from The Block, intel from one Basis investor stated the presence of a contract indicating how the raised funds would be utilized.
The contract explained the majority of invested capital had to remain in its original form and untouched until Basis introduced their stablecoin. Investors would also get their funds back if Basis did not launch.
Basis reportedly ran into regulatory difficulties, leading to the project’s cancellation and a return of investor money. The project touted prestigious interest and investment from players like “Bain Capital Ventures, GV, Andreessen Horowitz, Lightspeed Ventures and a number of other firms,” noted The Block.
The Basis project looked very promising, with an ambitious and skilled team. The Block noted a sizeable investor in the project who mentioned:
“this [the Basis team] is an extraordinarily talented team with an extremely ambitious vision tackling a very difficult problem […] our respect for this team is as high as it has ever been.”
Basis: a complex stablecoin
The problem, however, is that keeping those stablecoins pegged to their underlying dollar can be difficult. For example, GUSD saw a price increase to $1.19 USD per GUSD at one point this year (although normal fluctuations are often just a penny or two).
Basis held a unique model, hoping to provide a more stable dollar pegging. The project was touted on their website as “[a] stable cryptocurrency with an algorithmic central bank.”
The Basis (formerly called Basecoin) whitepaper explained the project was based on the Quantity Theory of Money. “[T]he Basis protocol estimates changes in demand by monitoring the exchange rate between Basis and its pegged assets,” the whitepaper explained. “[The] protocol expands and contracts Basis token supply based on the exchange rate.”
Speaking at the East-West Blockchain Conference last year, Basecoin founder Nader Al-Naji said, “elastic supply is how you get rid of volatility. When you have an elastic supply, you can fight fluctuating demand with fluctuating supply, to keep the value of the unit stable.”
For this system to work, Al-Naji mentioned the presence of “bond tokens” and “share tokens”, used in a fashion similar to how central banks currently operate. Put simply, the complex system involved switching out Basecoins, bond tokens, and share tokens at different points to help retain a one-to-one dollar pegging.
In a recent report on the subject, CoinTelegraph mentioned sources indicating that the referenced bond and share tokens could be classified as securities under U.S. Security and Exchange Commission regulations.
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