According to recent reports, the algorithmic stablecoin project, Basis, will be closing down and returning the majority of more than $130M to stakeholders, including Andreessen Horowitz.

While this is a setback to the development of stablecoins in general, which we believe to be important catalysts towards the mass adoption of crypto, it is not entirely a bad thing for crypto.

Many big stablecoin projects launched earlier this fall, for example, X, y, and z in (October). When fears about the market-leading stablecoin, Tether or USDT, took hold, the market moved to many of the other stablecoins that were launched. As opposed to X, Y, and Z, Basis took a much more measured approach and was slated to launch in 2019. One factor in Basis’s closure may have been this delay in launch.

Another reason behind Basis’ closure appears to be regulatory hurdles surrounding its particular model. As we discussed in our article on stablecoins, stability in price is achieved by pegging a coin against a collateral asset, such as fiat. In Basis’ case, this was achieved by the issuance of “bond tokens”, which provided leverage against price fluctuations. However, in the United States, such bond tokens are deemed securities by the U.S Securities and Exchange Commission (SEC), which exposes Basis to several legal issues.

That being said, Basis’ closure does not mean all stablecoins will suffer a similar fate. There are fiat-pegged models which involve traditional banks (USDT) and also crypto-based models, both of which seem to be moving forward positively.

The Basis incident does not mean investors should discard stablecoins, but they should hedge against such risks by considering more traditional cryptocurrencies, such as Bitcoin and Ethereum, which are not considered securities.