Name: Bain Capital Managing Director on Why Basis Shutdown
Uploaded: 2018-12-13
Duration: 5 min 50 s
Description: Salil Deshpande responds to the news.

[ MUSIC ] Basis, the stablecoin project, that just this week announced that they are giving back of all of their money to the investors. Bain Capital Ventures is one of the big investors in basis. Maybe you can tell us what happened, what went wrong, and where are they going from here? So nothing went wrong. Basis was an ambitious project and it was trying to create a purely decentralized, non- collateralized, algorithmic stable coin. And that's different from a centralized collateralized stable coin, like Tether or True or Circle or Gemini. And it's different from a decentralized collateralized Stablecoin like Maker. So a decentralized non- collateralized Stablecoin is the hardest kind to create. It's the holy grail of Stablecoins. The things went great throughout all of this, by the way. They've been working with regulators And over the last few months it became clear that there was really no way around the bond tokens and share tokens in Basis being securities. And with them being securities, they would have transfer restrictions. And the basis team would have to do KYC, maintain an an accredited investor list, have a centralized white list of entities that are allowed to own the share tokens and the share bonds. Which is all; doable, it's a pain but it's all doable. But The bond and the share tokens were an important part of contributing stability to the system. And it had the economic incentives that allowed participants in the system to help the system maintain the peg to the dollar. So with all these restrictions, liquidity would be reduced, and the reduction of liquidity would result in the Productional stability. So the Basis team explored a whole bunch of alternatives for what to do about this. And there are a lot of discussions, well, maybe we change this little part, or that little part. But [ LAUGH ] to make an analogy, if you're playing tennis And you decide instead of tennis rackets, you wanna start using tiny little paddles and instead of a tennis ball, you want to use a small plastic ball. And then you wanna play on a table instead of a tennis court. At some point along that way, it stops being tennis and starts becoming ping- pong. So If you change enough things, it became like the other stable. Of which there are a couple dozen. So it didn't seem like a big contribution to the world if we did that. I've just a question a little bit, Salil. There's some skeptics out there who said this was sort of a silly idea in the first place. In that, for a stable coin, the others ones are backed one for one by U. S. dollars. And Basis had this ambitious plan, where if it Rises above the value of a dollar, they'll issue more. Makes sense, it'll buy and it'll be equivalent again. And if it went below, you'd issue these bond tokens and people would rush in to buy these bonds hoping that the bond coupon would somehow pay off and offset the risk of this thing. Falling below a buck. And I think some people are sorta saying, wait a minute, this is just too complicated. Was this even possible in the first place? It was certainly complicated and it was ambitious. And you could argue that if something is complicated enough and ambitious enough, then it's silly. So in that sense, it's sort of a pointless debate. But a lot of venture investments are silly or seem silly. They have Less than 10 % chance of working, but when they work they really work. And all of the investments that I've made that have worked had many of those characteristics. We actually [ UNKNOWN ] on the show very early on when we first launched this show. And his team is packed with top technical talent, very impressive So I wanna drill down just a little bit more in understanding exactly what happened. It seems like there wasn't the foresight tos see that the regulatory regime would not allow for this to occur. Is that right? There was some hope and some assumptions that the regulatory environment would be a little more Favorable to the bond tokens and share tokens then it actually was. Yeah, I'm a little skeptical of that too. Not to be a negative nelly on this show but the official explanation was regulatory headwinds. But I mean an outfit like that has got very good lawyers. And I think they raised a proposition not so long ago. I mean, it was surely, their legal counsel was saying be careful guys, or did they just kind of get blindsided by the SEC? No the whole construction of this was. First of all, they raised the money on a SAFT, a simple agreement for future tokens which laid out very clearly that The token may not launch. And if the token does not launch, then everyone gets their money back. So this was a very well- anticipated possibility and the whole last year was to make sure that whatever was built was sound And compliant, and this is why they took the time. And their conclusions were result of many, many conversations with regulators while they were building the system. They certainly didn't want to build the system. Launch it and then start having conversations with regulators. [ MUSIC ]

Bain Capital Managing Director on Why Basis Shutdown

Finance

The company was a big investor in the cryptocurrency.