By
Temitope Olatunji
April 18th, 2024
Basis, a stablecoin project, that raised $133 million this April, is shutting down its operation and returning money to investors.
The volatility of the crypto market has become one of the reasons for the popularity of stablecoins that have been in the center of attention over the past several months. This autumn several of the major world’s cryptocurrency exchanges listed the main stablecoins on their platforms. The list of the stable coins that are now available on Huobi and OKex, for example, includes USD Coin (USDC), True USD (TUSD), Paxos (PAX) and the Gemini dollar (GUSD).
Nevertheless, not all stablecoins are experiencing the best times now. According to the recent reports, Andreessen Horowitz-backed stablecoin Basis is shutting down its operations and is going to return money to investors.
What is Basis
Basis is a non-collateralized algorithmic stablecoin. The main idea behind it is that an equilibrium price can be maintained by contacting the supply which is needed to restore its price and expanding the supply which is aimed at reducing the price.
Despite the fact that the working principle of Basis is much more complex than the working principle of many other stablecons, this April the project managed to raise $133 million in a private placement. The list of investors that believed in the potential of Basis included a number of prominent names like Bain Capital Ventures, GV, Andreessen Horowitz, Lightspeed Ventures and others.
Real Situation
Nevertheless, even such an impressive amount hasn’t helped Basis to move further than its whitepaper Beta phase. According to the unnamed sources close to the matter, one of the potential reasons for shutting down is regulatory pressure.
But it is still unclear what authority has voiced any regulatory concerns around Basis coin or business model. It is expected that Basis will reveal more details of its move a little bit later.
As it was stated by Nevin Freeman, who is an expert in the field of stablecoins and co-founder and CEO of stablecoin project Reserve, the regulatory issues may have arisen due to the peculiarities of one of Basis’ token types.
He explained that being an algorithmic stablecoin, Basis utilizes a so-called “secondary” or “bond” token. This token should be bought with a view to ensure stability of the price of the primary token.
But under the U.S. law, these secondary tokens are considered to be securities. So, it can be concluded that Basis has taken a decision to shut down its operations and return money to investors due to the discord with the U.S. Securities and Exchange Commission.
“Since there is only a small set of people who can [legally] buy these ‘share’ or ‘bond’ [unregistered] security tokens, protocols based on this mechanism may be at risk — if nobody wants to buy these tokens when the stablecoin is trading below the pegged price, the peg will just stay broken,”added Freeman.
Despite this situation, numerous sources who have worked with the team behind Basis noted that it was one of the most talented and professional teams they had ever faced within their carrier.