Algorithmic Stablecoin Basis Calls It a Day over Regulatory Pressure
Basis, a much-criticized stablecoin that wanted to use an algorithm to keep a dollar-pegged value, has shut down its operation, citing pressure from US regulators.
Basis, a project which wanted to launch a stablecoin based on a trading algorithm, has decided to close down, fearing restrictions from securities law. In a recent announcement, it said it would return the capital raised to its investors. Basis collected the equivalent of $133 million in 2017, an amount difficult to re-estimate after the 90% drop in Ethereum (ETH) and Bitcoin (BTC) prices.
Basis revealed it had considered alternative approaches to launching but gave up as it did not find a model that would appeal to investors.
“We considered many alternative paths to launch to try and comply with the regulatory constraints while keeping our product compelling and competitive. These paths included launching offshore with added utility to make bond and share tokens less financial in nature, and starting off with a centralized stability mechanism,” the project team explained.
Despite the relative popularity of stablecoins, Basis failed to launch its coin and supportive tokens. It envisioned an ecosystem where demand would help stabilize the coin’s price at $1, while a market would be opened for selling “bond” and “stock” tokens. The Basis team also suggested it may have to actively intervene in the markets to keep the stablecoin within range.
The model of Basis is somewhat similar to that of BitShares and BitUSD. However, the latter has lost its dollar peg again, crashing on December 3 to current levels of $0.70.
To realize its goal of stabilizing a digital asset while complying with all US regulations, Basis would have to issue assets with the status of securities. This would also mean the project would only be open to accredited investors for the first year. Given the fast pace of the crypto space, such requirements forced the startup to abandon its plans.
The setbacks for Basis also reveal the rather restrictive approach to issuing blockchain-based securities. While utility tokens have no limitations on sales, a security token would require whitelisting, transfer restrictions, and compliance with other requirements for traditional financial instruments. Owning and supporting Basis would also break anonymity, requiring extensive KYC (know your customer) checks and registration.
In 2018, such requirements became the norm, clamping on the free-for-all behavior of initial coin offering projects. Basis gave up on its plans before launching and distributing its digital asset, so the team is not threatened by regulatory action for selling unregistered securities.