WHY THIS MATTERS IN BRIEF
The value of Bitcoin and other cryptocurrencies swing wildly by the day making them almost useless as a medium of exchange, Basis has designed a stable cryptocurrency and if it works it “could replace money”.
On its debut nearly a decade ago, one of Bitcoin’s most appealing features was its potential to counter the currency inflation rates across the globe. However, as its popularity grew, its value took a pattern of radical dives and spikes, and it, therefore, came to be seen more as an investment opportunity rather than an everyday means of pay.
Now, some crypto companies are revisiting this initial purpose with hopes of creating a “stable coin” that doesn’t fall victim to cryptocurrencies’ volatile value landscape. With a stable coin, users can rely on a steady value and use their currency on a regular basis without fears of the drastic price fluctuations that Bitcoin, and other cryptocurrencies, have become accustomed to. A stable coin is the ideal digital alternative to the dollar bill, but it’s not easy to sustain, and because of this, it’s been famously deemed the “Holy Grail” of the cryptocurrency realm.
One of these ambitious companies is Basis, a one-year-old startup situated in New Jersey, USA, that’s attempting to hold the value of their decentralized cryptocurrency at about one US dollar. Doing so, they hope, will attract a slew of consistent users instead of occasional investors.
The company’s 26-year-old CEO and co-founder Nader Al-Naji cultivated a love for cryptocurrency while studying computer science at Princeton. While on campus, he successfully mined 22 Bitcoins in his senior year. Although he went on to work for Google after graduating, he revisited his passion in 2017 when he and two former classmates, Josh Chen and Lawrence Diao, dropped their jobs to found Basis. By tackling a different angle of the crypto world, the trio is hoping they can open the floodgates to an entirely elevated currency.
Amongst its competitors, Basis is ahead of the game after securing over $133 million USD from top investors, such as Bain Capital Ventures, Google Ventures, Lightspeed Venture Partners, Andreessen Horowitz, Sky Capital and others.
“We do believe that one winner will capture most of the mind share and create products and an ecosystem that uses its cryptocurrency,” Al-Naji said in an interview, “and we think once that foothold is in place.”
Basis has essentially won the game, he implied. Although the company is quite secretive about exactly how and when their Basis network will be available, we do know that they plan to manage the supply of their currency as its demand rises and falls. This supply-demand control has been criticized, by some, for being too similar to the traditional central banking system that cryptocurrency was meant to oust in the first place. But, Basis doesn’t mind this comparison and openly promotes their system as an “algorithmic central bank.”
They’re using a three-token method, as described in their white paper, with Basecoins, Base Bonds and Base Shares. Basecoins are the supposed “stable coins,” which are exchangeable tokens, supplied and controlled by the Basis bank, in order to maintain their equal value with the US dollar. Base Bonds are tokens used predominantly when basis prices go below $1 USD. In this case, the Basis system will auction their Base Bonds, which aren’t held to any particular value, on blockchain for under $1 to increase the token price. The incentive for bond holders is that they’re guaranteed, under certain conditions, by a one Basecoin payout down the line when the price rises back to $1. Lastly, the Base Shares also aren’t held to any particular value and come in a fixed supply. Their value is measured by the dividend policy, which provides shareholders with newly created Basecoins when the demand for coins goes up.
The Basis team is hoping to target three main uses with its crypto network, namely countering heavy inflation rates in the developing world, taking advantage of crowdfunding opportunities and creating an easier means of Coin-for-Coin exchange. Since the stable coin will always be at a constant value, swapping one Bitcoin for one stable coin, for example, would eliminate the need for a mediated transaction.
“You could utilize Slack or Telegram to do trades, which people already kind of do but it’s fraught with fraud,” Bitcoin developer, Jimmy Song, told Motherboard in an interview, “if you have something like that, where you can convert easily back and forth with the dollar or some digital equivalent, then you can have atomic swaps.”
Many industry leaders, including Song himself, are skeptical that a stable coin is truly achievable, but, with an extra $133 million USD to back their efforts, Basis may just be en route to some unexpected success.