Basis, the New Jersey-based crypto startup that was working on developing a stablecoin – and had attracted a number of A-List investors in short order – has announced that it is returning all money to investors and shutting down.
The company blamed regulatory challenges for its demise, noting in a statement that “having to apply US securities regulation to the system had a serious negative impact on our ability to launch Basis.” The company said that it “considered many alternative paths to launch to try and comply with the regulatory constraints while keeping our product compelling and competitive,” which “included launching offshore with added utility to make bond and share tokens less financial in nature, and starting off with a centralized stability mechanism.”
However, Basis concluded that none of “the paths we considered are compelling enough for our users or our investors, or consistent enough with our vision to justify moving forward.”
Although this isn’t the outcome any of us wanted, we knew going into this that we were fundamentally making a binary bet on a favorable regulatory landscape. The binary nature of our bet is precisely why we included a return of capital clause in our token sale to begin with, even though it was something we hoped we’d never have to rely on. So, while we’re disappointed we couldn’t launch the system we were all hoping to build, we’re thankful that we can at least do right by our investors given these circumstances.
After releasing its white paper in June 2017, Basis began to generate a significant amount of hype as it started raising capital from a murderer’s row of A-List investors. By April of this year, Basis had raised $133 million – which TechCrunch called “somewhat stunning” – from Stan Drunkenmiller, Lightspeed Venture Partners, Bain Capital Ventures, Andreessen Horowitz and even former Federal Reserve governor Kevin Warsh.
In its white paper, Basis touted its potential to work as a solution in developing nations where people lack access to stable currencies. It noted that “in countries with weak institutions and unstable currencies” there also tends to be “high rates of inflation and currency devaluation” plaguing their financial markets.
“In these markets, we expect a price-stable cryptocurrency will be in high demand,” the paper stated.
Salil Deshpande, managing director at Bain Capital Ventures, which led the fundraising effort for Basis, explained in a blog post on Medium that Bain’s interest in the crypto upstart was centered around its confidence in the “algorithmic central bank” that is cornerstone of Basis’ strategy.
“[The] Basis team has developed the first software protocol that can automate the core function of a central bank in a decentralized and algorithmic way,” Deshpande writes. He adds: “We were impressed by the team’s vision, thoughtfulness and ability to execute, and participated in their seed investment alongside other blockchain investors.”
But after Basis announced it was shutting down, Deshpande acknowledged the regulatory challenges were probably too much for the startup to continue.
“At a high level, their bond tokens had to be classified as securities, which meant they’d need to restrict transfers and do accredited investor checks using a centralized whitelisting system,” he said. “That was totally at odds with the concept of a decentralized independent stablecoin.”
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