Big news this week was that Basis, the company developing the algorithmic stablecoin protocol, is shutting down barely a year from start. They announced they will return funds to their investors
A few thoughts:
- the hype around this project was *insane* from the early days, many investors fomo'ed in indiscriminately at valuations that made absolutely no sense given the stage and risks involved.
- many skeptics had raised concerns about the long term viability of algorithmic stablecoins. We shared some of those views, though ultimately we accept that venture capital is there for experimenting with and backing crazy things (Uber and Airbnb probably sounded as crazy and borderline illegal in the very early days too).
- the algorithmic stable coin model proposed by Basis didn't ultimately see the light of day, so we won't know whether it would have worked as intended. It probably would have failed as many predicted, like the large majority of startups after all. What's very clear though is that the algo model isn't viable in the context of US securities laws.
- compromises to the original model were deemed not worthy of a shot and that comes across as grown up behaviour, at least for this industry's standards. No one really needs yet another semi-centralized stable coin frankly.
- it also seems clear that investors either ignored US securities regulation or more likely took the bet that a more lenient regulatory environment would have somehow emerged.
- Many jaws dropped at the amount of money raised ($133M), though most of the capital was reserved for the company to "play the role of trader", at least initially to bootstrap the model.
- returning the capital is the normal course of action in a dissolution event. There's a bit of a debate around what investors who contributed crypto will get back, though it seems that the majority of funds were raised in USD and investors will get most of it back. Jake's view
is that there will be litigation regardless.
- The widely cracked joke was that this will end up as the best deal of the year, with the runner up being 'it was stable after all'.
PS: big kudos to TheBlock who has been stepping up its investigative / scoop area lately and is doing a tremendous job of reporting news and uncovering crazy stories (as you can read later), and was the first
to report on Basis.