Basis, found online at Basis.io, is a stablecoin backed by an algorithmic central bank. Find out how it works today in our review.
What Is Basis?
Basis is a cryptocurrency project founded by three Princeton graduates. The team has been making headlines throughout April 2018 for closing an enormous fundraising round.
The project is led by a company called Intangible Labs. The goal of the project is to create a stable cryptocurrency called Basis. That token would stay at a price of around $1.
Basis was previously known as Basecoin.
During the latest fundraising round, Basis raised $133 million led by Bain Capital Ventures, marking the company’s first ever purchase of a digital token. Alphabet’s venture capital division GV, formerly known as Google Ventures, also participated in the round, as did Lightspped Venture Partners, Foundational Capital, Andreesen Horowitz, and Sky Capital. Billionaire hedge fund manager Stanley Druckermiller and former Federal Reserve governor Kevin Warsh also purchased tokens during the private placement round.
Obviously, a lot of people see enormous potential in the Basis cryptocurrency project. Let’s take a closer look at how the company plans to introduce a better stablecoin.
How Does Basis Work?
Basis seeks to create a stable digital currency. That cryptocurrency would have the benefits of cryptocurrency – like the easily digital storage, the secure trustless transfers, and the ability to trade on crypto markets – but it wouldn’t have the volatility.
Obviously, we’ve seen plenty of similar “stablecoin” projects emerge over the last few years. Tether, which offers the USD Tether (USDT) is the best-known stablecoin, although the company has faced controversy over its lack of auditing. Other companies have launched similar offerings, although we don’t have a single preferred stablecoin available for use across the industry.
A stablecoin would obviously be useful. Basis aims to track the value of a measure like the USD or the consumer price index (CPI), giving cryptocurrency investors a “safe haven” where they can park their crypto dollars to ride out volatility. Many people are turned away from bitcoin due to the volatility – but also recognize that volatility presents an enormous opportunity.
The crypto industry would undoubtedly benefit from the creation of a stable cryptocurrency. Volatility is great for making headlines and keeping investors interested. However, it makes cryptocurrencies virtually useless when it comes to mainstream use – like for loans, salaries, and other basic financial contracts.
A stablecoin isn’t just useful for the crypto community. Many countries – particularly in developing parts of the world – have highly volatile national currencies.
With these problems in mind, Basis wants to maintain a stable value while serving as a medium of exchange accessible to anyone with an internet connection.
How Does Basis Maintain A Price Of $1 USD?
Basis will work in a similar way to other stablecoins: the company will use an algorithm to dictate monetary policy, adjusting supply to raise or lower prices as necessary:
When demand is rising, the Basis blockchain will create more Basis tokens, and the added supply will cause the price of Basis to fall
When demand is falling, the Basis blockchain will buy back Basis tokens, and the shrinking supply will restore the Basis price
This mechanism is similar to how central banks expand and contract monetary supply. They buy and sell fiscal debt to stabilize purchasing power. That’s why Basis refers to its system as “an algorithmic central bank”.
The other challenge faced by Basis is how to measure the exchange rate of its tokens. Basis needs to reliably track the Basis-USD exchange rate to implement monetary supply as listed above.
To track the exchange rate, Basis will use a trusted feed (a single feed that uploads the real world exchange rate to the blockchain from a large exchange like Kraken or Coinbase) and a delegated decentralized feed. This creates a semi-decentralized model for tracking the exchange rate. The decentralized feed will select a small group of feed uploaders by vote from holders of Basis. The algorithm will choose the median exchange rate from all traders at fixed intervals. If a bad actor consistently deviates from the median and is trying to disrupt the system, then that person can be voted out.
Basis will also consider implementing a fully decentralized Schelling point scheme to determine the exchange rate. With this scheme, anyone on the network can vote on what they think the average exchange rate was over the last five minutes. Votes are aggregated every 5 minutes, then weighted by the number of coins possessed by each voter. The more coins you have, the more weight your vote will receive.
Basis Uses Three Coins To Maintain Stable Value
The entire Basis system revolves around the use of three tokens. These tokens are used to expand and contract monetary supply:
These are the core tokens of the Basis system. Each Basis token is pegged to the USD and is intended to be used as a medium of exchange. The supply of Basis tokens is expanded and contracted to maintain the peg.
Bond tokens, or bonds, are tokens auctioned off by the Basis blockchain when the supply of Basis tokens needs to contract. Bonds are not pegged to anything, although each bond promises the holder 1 Basis token at some point in the future under certain conditions. Newly-created bonds are sold on open markets for prices of less than 1 Basis, which means you can earn a premium or yield by selling your bond at a future date or time. You can sell your bond when the system is creating Basis in the future (when the supply is expanding), when the bond expires, or when all bond tokens created before your bond have been redeemed or expired.
Called shares, these tokens have a fixed supply from the genesis of the Basis blockchain. These tokens are not pegged to anything, but their value stems from their dividend policy. When demand for Basis goes up and the blockchain creates new Basis tokens, shareholders will receive these newly-created Basis tokens pro-rata as long as all outstanding bonds have been redeemed.
Basis is a stablecoin created by a company named Intangible Labs based in New Jersey. The company was founded by three Princeton graduates.
The team’s backgrounds include work at Google Search, Google Ads, Google Research, Goldman Sachs, Hudson River Trading, DE Share, and more.
The founding team includes Nader Al-Naji (CEO and Co-Founder), Lawrence Diao (Co-Founder), and Josh Chen (Co-Founder). Other listed members of the executive team include Brian Freyburger (CTO).
In April 2018, Basis conducted a private placement round led by some of the biggest names in venture capital, including GV (Google Ventures), Digital Currency Group, Andreesen Horowitz, and Bain Capital Ventures. Intangible Labs raised $133 million in total.
Basis might be the most promising cryptocurrency venture the world has seen. Backed by $133 million in venture capital, the New Jersey-based company seeks to create a stablecoin pegged to the USD. It will use an algorithmic central bank that expands and contracts money supply to maintain a price of 1 Basis = $1 USD.
It’s unclear when Basis will be ready to launch.
To learn more about the project and its ongoing development, visit online today at Basis.io.