Konstantin Rabin, financial expert and crypto enthusiast, unveils what hides behind the recent shut down of once promising stablecoin project – Basis.
Regulation can be a real pain in the neck for financial companies, but it is the one thing protecting customers from fraud and scams. Having a strict regulation could, however, spark some controversy as already existing companies face terrible adversities to overcome the adaptation of their business model to the new laws.
This is the case with Basis, a stable coin crypto network. The company was able to amass more than $130 million from private as well as institutional investors back in April this year and was hoping for an early launch. The investors included big names such as Kevin Warsh from the Federal Reserve and Stan Druckenmiller a hedge fund manager.
Because of the serious restrictions that the new regulatory framework from the SEC has rendered the Basis business model unworkable. Because of this, the company is now forced to return all of the invested funds back to the investors, a fate no company wants to face.
SEC on the Hunt
The fact is that the new regulations are mostly towards Securities and Bonds. This may seem weird as to why would a stable coin have anything in common with these assets? The thing is that the Basis business model was built in a way that their tokens would not be able to avoid being named as securities and share tokens. Because of this, the company would not be able to register them with the SEC, therefore rendering the tokens illegal, and the network completely useless.
Turning into a Habit
This is nothing new from the SEC as it has been quite hostile to the cryptocurrency market in the past when it rejected Bitcoin ETFs despite numerous tries from the brothers Winklevoss. As a matter of fact, the SEC has been the recipient of numerous criticizing quotes from the US community, especially when it accused Elon Musk, the billionaire tech philanthropist of fraud and charged him a fine of $20 million.
Despite the criticism, the SEC continued its strict relationship with cryptocurrencies which is now illustrated in this case of Basis. Quoting a representative from the company it was said that the way the US monetary policy works is that, for every new bond and share token a centralized whitelist is required. Because the Basis network model was completely based on continuously issuing tokens, it would put them in a loop of endless paperwork and whitelist applications, which would have been just unsustainable.
Stablecoins are Indeed Stable
Stablecoins mostly align themselves with a unit of fiat currency. For example, the USDT which is maintained on a 1 USD ration. Basis had a different idea for its stablecoin. Their network would rely on an algorithm in order to adjust the supply of the stable coin to maintain its price on the $1 position.
Despite the primary reason of closing down being unworkable regulations, it’s rumored that the software behind this network was also incompetent. This rumor was born when Al-Naji an executive of Basis struggled to answer the question of when the Basis stable coin would actually go into circulation.
However, there are also numerous theories as to why Basis was stopped in its tracks. Most prominent being the number of stablecoins on the market right now. The popularity of Basis would be under question as people could stray away from it, which would initially make it unmaintainable and outright unprofitable.
Konstantin has been working in the financial services industry since 2011. He is over-viewing various updates in the technology, regulation, and market movements. He's passionate about cryptos and all things financial.