This year, several stablecoins (Circle USD, Gemini Coin and PAX) have been listed on major cryptocurrency exchanges. For the first time since 2014, investors in the digital asset market have access to verified, backed and regulated alternatives to Tether (USDT).
Since the early days of cryptocurrencies, Tether has been criticized for its lack of transparency, full audits, and banking partners. Investor confidence in the coin has decreased, which is what caused companies like Circle to enter the market.
Basis takes a fundamentally different approach to developing a stable coin. Instead of engaging banking partners and obtaining capital to support the coin, its developers use a complex algorithm to maintain its exchange rate 1:1 to the US dollar.
Essentially, Basis maintains the price by decreasing and increasing the supply in accordance with the market situation. The project buys back its own tokens if the price falls and increases the supply if it rises.
A potential problem the project may face is that there is no physical evidence to support the fact that the asset is pegged 1:1 to the US dollar. In the current reality, when regulators themselves do not have a clear understanding of how to approach the regulation of cryptocurrencies, such projects may face legal conflicts.
Su Zhu, CEO of Three Arrows Capital, said that venture capital firms tentatively supported the Basis concept without a working prototype, and without measuring the risks associated with the implementation of such a concept. She said:
The project raised funds without having a working prototype or passing a fundamental stress test. Instead of conducting analysis, venture capitalists have succumbed to FOMO. Executives at multibillion-dollar companies like PwC have in the past said that existing regulatory frameworks have prevented blockchain and cryptocurrency companies from expanding and developing related technologies. For the foreseeable future, cryptocurrencies that require auditing, monitoring, and governance will likely face similar challenges as Basis, especially in areas of the United States where laws governing cryptocurrencies are particularly stringent.
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