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On December 13, Frank Chapparo of The Block reported that Basis, an encrypted stripteco project that raised about $ 133 million in April, is ending its operations and is in the process of returning the capital raised to its investors.
The project was funded by some of the largest venture capital companies in the technology space, including Andreessen Horowitz and Bain Capital Ventures, a private investment company with over $ 100 billion in assets under management.
Possible cause behind the fight
This year, a handful of high-profile stablecoin projects such as Circle's USD Coin, Gemini Coin Gemini and Paxos & PAX debuted with listings on the major cryptocurrency exchanges. For the first time since 2014, investors in the digital goods market have been fully controlled, guaranteed, transparent and regulated alternatives to Tether (USDT).
Since the dawn of cryptography, a critique of Tether has been its lack of transparency, complete controls and its banking partners. Investors showed a decline in confidence towards the stablecoin, which eventually led the likes of Circle to enter the stablecoin market.
Base has taken a drastically different approach than other major stablecoin projects in the market. Instead of obtaining banking partners and obtaining capital to represent the amount of US dollars held by its investors, it has decided to incorporate a complex algorithm to maintain its 1: 1 ratio with the dollar.
Basis Basically maintains a stable price by decreasing and increasing the offer between market volatility. The project repurchases the basic tokens if the price decreases and increases the offer when the price increases.
As the team explained:
"The base is designed to keep prices stable by algorithmatically adjusting the offer.When the demand increases, the blockchain will create more bases.The extended offer is designed to bring back the basic price.When the demand decreases, the blockchain will reacquire Basis.The contracted supply is designed to restore the base price. "
The problem that the project may have encountered with regulators in the US market, which remains unknown, is that there is no tangible evidence to show that the 1: 1 peg of the asset with the US dollar can be maintained.
While the project has tried to use an innovative solution to solve the cryptic volatility problem for both institutions and customers, in the current state of the market in which regulators are not yet clear on how to deal with cryptocurrency regulation, such projects they could go to legal conflicts.
Su Zhu, CEO of Three Arrows Capital, said that venture capital firms have prematurely supported the basic concept without a working prototype, failing to measure the risks involved in managing that concept. he He said:
"Fundraising without a functional prototype or basic game theory stress test: Any stablecoin algorithm generates a huge attack surface that is very difficult to reason in a short space of time, instead of building a community and making holes in it, VC are FOMOed in. "
Could other projects be followed?
Multi-billion dollar companies such as PwC have previously stated that existing regulatory frameworks prevent blockchain projects and encrypted companies from expanding space and evolving the technology that surrounds it.
Steve Davies, head of the PwC blockchain, said earlier:
"Companies tell us they do not want to be left behind by the blockchain, even if at this early stage of its development concerns about trust and regulation remain, Blockchain for its own definition should generate trust, but in reality, companies face problems trust almost at every turn. "
For the foreseeable future, encryption projects that are difficult to monitor, monitor and govern are likely to address problems similar to those of Base, especially in regions such as the United States that strictly regulate the cryptocurrency sector.
Shutterstock foreground image.
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