Why is Basis Stablecoin Project Shutting Down?

13 December 2018,

After a productive November for most stablecoins, it comes as a little surprise that the Basis project which looked so promising during their fundraising in April is shutting down.

According to a report by The Block, anonymous sources revealed that the project would stop operations and return a majority of the $133 million funds it received from early investors such as Bain Capital Ventures and Andreessen Horowitz.

The reason behind the shutdown remains relatively unknown, at the time of writing this report. However, the news source says that the Basis has run into some regulatory concerns because of the nature of their token.


The Disparity

Unlike most stablecoin projects that maintain a banking reserve, the Basis project prides itself as one that will develop an “algorithmic central bank.”

Such a stablecoin process planned by Basis requires the issuing of a “secondary token” which is comparable to traditional bonds that will be bought by their main investors. There will also be a primary token which crypto traders will interact with and another token known as “base shares” which will be periodically issued to reduce the circulating supply of the stablecoin.

However, the stability of the primary token will rely on whether the secondary tokens are bought or not and the volume that is purchased by investors.

Nevin Freeman, co-founder, and CEO another stablecoin project, Reserve told crypto news publication CoinTelegraph that Basis’s secondary tokens fall under what U.S regulators know as securities.

“In many cases, these secondary ‘share’ or ‘bond’ tokens are securities [under U.S. law],” he said.

The token assumes the “security” status because only a small set of people can buy the secondary tokens and they can decide not to, each time the stablecoin goes below the pegged ratio of 1:1 against the USD.

So, instead of registering the tokens as ‘security’ it appears that Basis is shutting down to figure out an algorithm that solves one of the problems facing stablecoins that wish to operate with their proposed model.