Report

‘Basis’ Stablecoin Calls it Quits, Returns Funds to Investors

The company announced that regulatory concerns had put an insurmountable roadblock in their plans.

Basis, a ‘stablecoin’ cryptocurrency network that raised $133 million from investors in April, announced on Thursday that it would be shutting down due to regulatory concerns. Funds will be returned to investors, which include Andreessen Horowitz, Bain Capital Ventures, hedge fund manager Stan Druckenmiller, former Federal Reserve governor Kevin Warsh, Lightspeed Venture Partners, and a number of other powerful VC firms and high-volume individual investors in the tech space.

“Unfortunately, having to apply US securities regulation to the system had a serious negative impact on our ability to launch Basis,” a blog post by Nader Al-Naji, chief executive of Intangible Labs, said on Thursday.

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The announcement also explained that the company’s lawyers “came to the consensus that there would be no way to avoid securities status for bond and share tokens.) As unregistered securities, Basis tokens would be subject to transfer restrictions, essentially rendering the network useless.

Additionally, “while transfer restrictions can generally lapse 12 months after a security is issued.” Basis faced a problem with the way that its network, which would continually issue new tokens, is designed to run. “Because the auctions of bond and share tokens governed by our monetary policy would be continuously issued, transfer restrictions and a centralized whitelist would be required indefinitely.”

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Therefore, despite “[considering] many alternative paths,” including launching offshore, the company didn’t find any another plan that was “compelling” enough for its users and investors.

The Stablecoin Market is Getting Crowded

Unlike most other stablecoins, which partner with banks to keep one unit of fiat currency for every one crypto coin on a pre-established ratio (ie USD$1 for every 1 USDT), Basis was designed to keep its value with an algorithm that would shrink and grow the total supply of Basis coins to maintain a $1 valuation.

While the blog post announcing the shutdown cited regulatory concerns as the reason to end the project, some analysts have speculated that the technology behind the network may have also been inviable. TechCrunch reported that throughout Basis’ lifespan, Al-Naji was “candid” about the fact that he didn’t have any definite date for when Basis would be officially put into circulation.

However, Basis’ demise could be a symptom of an overcrowded stablecoin market. Head of research at cryptocurrency services firm Blockchain Gary Hileman told Technology Review in September that despite the fact that only a handful of stablecoin projects were on the map at the end of 2017, there are currently about 60 stablecoins existing at various stages of their lifecycles.

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