Basis Giving its Money Back to Investors


A cryptocurrency exchange called Basis is under fire this week as it prepares to actually refund investors for operations that haven’t turned out the way entrepreneurial leaders had hoped.

Cointelegraph reports on the collapse of this stablecoin and its efforts to give back funding to the tune of $133 million to partners like Bain Capital and Andreesen Horowitz.

“In private correspondence with Cointelegraph today, Nevin Freeman, co-founder and CEO of competing stablecoin project Reserve, commented that the move is evidently due to regulatory concerns around one of Basis’ token types.” Writes Olivia Capozzalo today.

Capozzalo also quotes Freeman as saying that the Basis protocol uses a secondary token called a bond token in order to allow the primary token to be pegged properly.

Because these secondary tokens are securities by U.S. law, they come with certain limitations and according to these reports, there is concern about eligible buyers for the secondary tokens.

At CCN, experts discuss how Basis tried to get around this problem.

“Rather than obtaining banking partners and obtaining capital to represent the amount of U.S. dollars held by its investors, it decided to incorporate a complex algorithm to maintain its one-to-one peg with USD,” CCN analysts write.

The report notes that “there is no tangible evidence to prove that the asset’s one-to-one peg with the U.S. dollar can be maintained.”

Coindesk has some responses from Basis founder Nader Al-Naji.

“As regulatory guidance started to trickle out over time, our lawyers came to a consensus that there would be no way to avoid securities status for bond and share tokens (though Basis would likely be free of this characterization),” Naju reportedly said. “We considered many alternative paths to launch to try and comply with the regulatory constraints while keeping our product compelling and competitive, including launching offshore, and starting off with a centralized stability mechanism … Ultimately, however, we don’t think any of the paths we considered are compelling enough for our users or our investors, or consistent enough with our vision to justify moving forward.”

The disappointing Herculean effort to bridge the gap on stablecoin implementation shows how tricky this space is. Another loser this month was Tether, a stablecoin that also saw its 1:1 USD backing challenged. Amid accusations of price manipulation, a lack of Tether audits is concerning U.S. regulators who are investigating Tether’s finances.

With these cautionary tales in play, many traders are becoming more cautionary about stablecoins in general. Others are diversifying into “hedged” positions on crypto, or even into secondary markets, investing in firms that are dedicated to using the blockchain in the future. Look for where money moves in the crypto world as coins like BTC and ETH jump around on the exchanges.