The volatile swings in crypto currency is leading to a lot of startups shutting down. Last week we saw news of Swiss Crypto Mining Firm Envion ordered by court to Shut Down. This week, Basis, Crypto’s Top Funded Startup announced that it was shutting down.  Basis had bagged $133 million from top VCs announced that it is shutting down and also returning the money to investors.

Lawmakers across the globe have been trying to find ways to regulate the cryptocurrencies. Basis tried to design their project under the assumption that their tokens, or what they created to adjust the supply of its stablecoin  would not be subjected to the US securities law. However, they had to apply for permission from the American Securities and Exchange Commission [SEC], which led to discovery of fundamental issues with their business model.

The announcement on the website by Nader Al-Naji, Lawrence Diao, Josh Chen said  “Unfortunately, having to apply US securities regulation to the system had a serious negative impact on our ability to launch Basis.”

The announcement by the Basis team explained:

• As regulatory guidance started to trickle out over time, our lawyers came to a consensus that there would be no way to avoid securities status for bond and share tokens (though Basis would likely be free of this characterization).

• Due to their status as unregistered securities, bond and share tokens would be subject to transfer restrictions, with Intangible Labs responsible for limiting token ownership to accredited investors in the US for the first year after issuance and for performing eligibility checks on international users.

• Enforcing transfer restrictions would require a centralized whitelist, meaning our system would not only lose its censorship resistance, but also that on-chain auctions would have significantly less liquidity.

• Having fewer participants in the on-chain auctions adversely affects the stability of Basis, making Basis intrinsically less attractive to users. Additionally, imposing transfer restrictions on bond and share token auctions materially hurts our ability to build the Basis ecosystem.

• While transfer restrictions can generally lapse 12 months after a security is issued, because the auctions of bond and share tokens governed by our monetary policy would be continuously issued, transfer restrictions and a centralized whitelist would be required indefinitely.

According to a report in Forbes, “Sadly, Al Naji tells Forbes the Basis technology was nearly complete, and his company was mostly just waiting for a final green light from regulators before unleashing it into the world. Forbes named Al Naji to its 2019 30 Under 30 list of young entrepreneurs out to change the world.”

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Footnote: The failure of crypto startups notwithstanding, innovations in Blockchains and Cryptocurrency continue to be hotly watched technology trends