Crypto Newsletter 12/19: $133M Wasn’t Enough to Save This Startup

StartEngine Stories February 8, 2019

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Crypto Newsletter 12/19: $133M Wasn’t Enough to Save This Startup

In the face of US regulation, one startup is throwing in the towel. Basis, the stablecoin being built by three Princeton honors graduates at Intangible Labs, is shutting down after eighteen months of development. A darling of venture capital, Basis raised $133M last spring from a list of A-tier firms, including Andreessen Horowitz, Google Ventures, Bain Capital, and more.

So what happened? In an interview with Forbes, co-founder & CEO Nader Al-Naji described a meeting with the SEC to discuss the regulatory nature of Basis, from which his team got the impression that classification as a security was unavoidable for Basis.

Basis aimed to be an “algorithmic central bank,” in the words of its white paper, that created a price-stable cryptocurrency by automatically minting and buying back tokens to match demand. This would be done via the auction of “bond” and “share” tokens on-chain, and there would be no centralized entity holding fiat to back the currency. The classification of those bond and share tokens in particular was the question mark that led to the project shutting down.

However, rather than the Basis story ending in a lawsuit, the Basis team are closing the project with grace, returning the capital they raised to investors, as they decided a centralized whitelist (that would have been the solution given the regulatory landscape) undermined their original vision.

You can read Al-Naji’s full remarks on the decision here.

What’s Happening In the News

1) Former CEO of Mt Gox Faces Jailtime

Japanese prosecutors seek a 10-year jail sentence for the former CEO of Mt. Gox, Mark Karpeles (33), and claim Karpeles embezzled $3M from Mt. Gox for his own personal use.

2) Blockstack to Survive Crypto Winter

Companies that have raised capital via an ICO could learn a thing or two from Blockstack, which raised $54M in a Series A in 2016 and 2017, but still has plenty of runway as to date they have used less than 20% of the capital they raised. Their frugality is based on two decisions: converting 70% of their raise to fiat and locking up the majority of the money until certain milestones are set. Last week, the Blockstack team unlocked $25M of their raise for reaching their goal of getting their blockchain running with real users through the network’s support of dozens of decentralized applications.

3) TokenSoft Acquires a Stake in a Broker-Dealer

Last week, TokenSoft, a platform that provides tools to design, sell, and manage security tokens, acquired a 20% stake in a broker-dealer, renamed TokenSoft Global Markets after the deal, to expand the range of TokenSoft’s services. TokenSoft’s CEO Mason Borda, who spoke at the StartEngine Summit this past October, said the move was in response to client demand.

Articles We Read (And You Should Too)

1) Laundering Money with Bitcoin ATMs

Two Bloomberg journalists dive into the world of Bitcoin ATMs and learn from a former US federal prosecutor just how easy it is for criminals to launder dirty money in the 2,389 Bitcoin ATMs in the US.

2) Bath Salts to Bitcoin

New York Magazine examines the life of eccentric anti-virus multimillionaire John McAfee, who fled Belize in the wake of murder allegations and publicly boasted about his experience with Bath Salts before becoming a public figure in crypto. This article is a fascinating look into one of the strangest icons of the crypto bubble and how he charged millions in exchange for manipulating his followers into buying the tokens of the latest ICO.

3) The Security Token Standard

StartEngine’s co-founder & CEO Howard Marks explains the benefits of tokenizing securities and then takes a closer look at 7 of the security token standards being built and their differences, including StartEngine’s ERC-1450, Harbor’s R-Token, and Securitize’s DS Token.

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