A significant stablecoin—Basis (formerly Basecoin), is reportedly shutting down its operations. The algorithmic stablecoin project cited regulatory issues as the reason behind the closure. However, it assured investors that the majority of capital raised would be returned to them.
Basis had enjoyed the backing of stalwarts from the finance and technology sectors, including Bain Capital Ventures, GV, Stanley Druckenmiller, Kevin Warsh, Lightspeed, Foundation Capital, Andreessen Horowitz, Wing VC, NFX, Valor Capital, Zhenfund, INBlockchain, Ceyuan Ventures, Sky9 Capital, and many more. Back in April, Basis had raised $133M in a private round of funding from these firms.
Basis was not pegged to the US dollar and instead was built with a complex blockchain-based ‘algorithmic central bank’ in an attempt to make it stable and usable across the globe. The coin’s inflation rate was thus, controlled by this ‘algorithmic central bank.’
The reasons behind the shutdown are still not clear. More details are expected to be revealed within a day or two.
Nevin Freeman, co-founder, and CEO of stablecoin Reserve, in a private conversation with Cointelegraph, said that the move is seemingly due to ‘regulatory headwinds’ between Basis and the U.S. Securities and Exchange Commission (SEC) over one of Basis’ token types. Freeman commented that as with other algorithmic stablecoins, Basis’ protocol implements a “secondary token,” known as a “bond” token, which needs to be procured for the primary token to keep its stable peg in place.
Freeman further said that in many cases, these secondary ‘bond’ tokens are securities under the U.S. law. He was quoted as saying, “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.”
The shutdown comes at a time when the stablecoin market was showing signs of positive progress. Phillippe Bekhazi, CEO of XBTO Group, had earlier predicted that 2019 would be the year of stable coins. “They can also be used as a mechanism to move value around in stable terms, and technically even for payments, although the speed of the underlying blockchain may be a limiting factor for time-sensitive transactions, for the time being,” asserted Bekhazi.
The cryptocurrency community, therefore, seems quite surprised by this move, considering the probable rise of stablecoins, and the promising future it was moving towards.