Morning Report: Basis has raised a huge sum from a host of investors to build a crypto that doesn’t gyrate. The concept is neat, if it works.
Don’t call it an ICO. Instead, Basis calls its $133 million fundraise from nearly everyone a “private placement.” It’s a truckload of money from a lot of people who presumably don’t buy equity in silly things. Here’s TechCrunch’s detail of the list of dollar-givers:
Investors apparently love what Basis is cooking up. The upstart is announcing today that it has raised a somewhat stunning $133 million in funding from Bain Capital Ventures, GV, longtime hedge fund manager Stan Druckenmiller, one-time Federal Reserve governor Kevin Warsh, Lightspeed Venture Partners, Foundation Capital, Andreessen Horowitz, WingVC, NFX Ventures, Valor Capital, Zhenfund, Ceyuan, [Sky9] Capital, Digital Currency Group and others.
I’d call it a party round, but instead of 87 people putting in a total of $1.2 million to a cluster-funded seed round, this it the Big Kid version of 2014-era funding event.
Put in simpler terms: the Basis round seems to be a broad cut of the big money buying an option on something that could become big. And, if it doesn’t, none of the investors listed above will care much.
So Basis has a lot of money to build a stablecoin. What is that? A good question. It’s a crypto asset that is pegged to some other asset at a fixed rate. You can peg a stablecoin to a few things, including a fiat currency (the dollar, say) or to a separate crypto asset. The key goal is that it exists and can be used as a currency, whereas bitcoin et al are volatile messes that you shouldn’t use day-to-day.
Basis wants to take the stablecoin idea, which isn’t new, and make it work. (You could argue that Tether, which is pegged to the dollar, “works,” but there’s enough bullshit floating around its ecosystem at the moment that it’s best left alone.) How it wants to do that is interesting.
You can read the Basis white paper here if you’d like, but the project will sport a system that works in the following manner:
- There are three core tokens in Basis: Basis itself, a USD-pegged crypto that people can buy and sell and exchange for goods; Bond tokens that are sold during moments of forced Basis supply contraction; share tokens, which I presume are what the investors today got a lot of. These may pay out more Basis in the future.
- The system operates by expanding and contracting the supply of Basis to maintain its peg to the dollar. So, if Basis rises in value compared to the dollar, new Basis will be generated to increase supply; presuming flat demand, the price should correct towards its peg. Share token owners get a portion of the newly-minted Basis. That’s why it’s good to own shares. (New Basis goes first to bond token holders, which brings us to supply contraction.)
- But if Basis needs to contract its supply, it offers bond tokens for less than one Basis per, which are redeemable later for one Basis. So, if Basis drops to $0.90 per token from a $1 peg, bond tokens will be offered to current Basis owners, which may be worth a full, normally-pegged Basis later. In this way, the company can use later, implied interest (price?) appreciation to reduce short-term supply to balance out a lack of interest in buying Basis compared to selling it.
- There are other mechanisms to keep things working, including a bond death date.
There is a certain logical flow to the idea, so, at a minimum, it has some chance of working.
But it won’t be easy. I have some problems, just to start, with how Basis will manage supply and demand. If a backlog of bonds builds, at which point no one will trade their Basis for bonds as they will be stuck in the “Bond Queue” at the back, increasing their chance of having their bonds die. At that point, bond tokens lose their attraction, and Basis’ supply can’t be contracted as no one will trade Basis tokens for bond tokens. Then you just have a mess.
And on we could go. But it’s a huge bet and the venture world is spreading its wager across a host of LPs to avoid any one party taking a gut punch for playing this particular parlor game.
Still, $133 million is a pile of money. 2018 sure is weird.
From The Crunchbase Daily:
Basis, a New Jersey-based startup formerly known as Basecoin that is developing a price-stable cryptocurrency, has raised $133 million from a long list of backers, including Bain Capital Ventures, GV, Lightspeed, and Andreessen Horowitz.
Several smaller venture firms have disclosed fundraisings this week. The list includes PSL Labs, which raised $80 million to focus on Pacific Northwest startups, Sky9 Capital, a China-based venture fund that closed on $200 million, and Caerus Ventures, a Florida-based early stage firm that is seeking $100 million.
Wonolo, a San Francisco-based startup developing a mobile platform for temporary workers to find employment, announced that it has closed a $13 million Series B round led by Sequoia Capital.
Organizations that invest on behalf of ultra-high net worth families are participating in a growing number of startup deals. Crunchbase News takes a look at the most prolific investors in this category, as well as who they’re backing.