A US-based cryptocurrency startup called Intangible Labs announced yesterday that it had raised $133 million in a private placement from big-name investors such as Bain Capital Ventures, GV (formerly, Google Ventures), Lightspeed Venture Partners, Andreessen Horowitz, and Pantera Capital. It is building a new price-stable cryptocurrency (called Basis, but formerly known as Basecoin) that eliminates volatility through the idea of an algorithmic central bank.
The New Jersey based startup was founded by three former classmates at Princeton University: Nader Al-Naji, Lawrence Diao, and Josh Chen.
The Basis team believes that most crypto assets, such as Bitcoin, although very good for speculation purposes, are not very good as currencies since their inherent price volatility provides a huge barrier to their widespread adoption. Swings in demand can result in huge swings in price. For example, imagine that your salary was paid in Bitcoin. One month, you might not be able to be able to pay your rent and buy food. The next month, your employer might not be able to pay your salary.
Most existing cryptocurrencies either have a fixed supply of tokens (like Bitcoin) or continuously expanding one (such as Ethereum). In contrast, Basis was designed to achieve price stability by having a supply that is expanding or contracting based on demand, in the same way that a central bank maintains stability by expanding or contracting the supply of money.
According to the white paper, Basis algorithmically adjusts the supply using the same economic principles used by central banks, the most important of which is the Quantity Theory of Money. When demand goes up, the blockchain will "create more Basis"; the expanded supply brings down the price of the tokens. When demand goes down, the blockchain will "buy back Basis"; the contracted supply brings up the price of the tokens.
In his article on Medium, co-founder Nade Al-Naji explains that the main motivation for creating a stablecoin, or price-stable cryptocurrency, came from the need for a stable currency in developing countries, which usually have unstable local currencies that can devalue by 10% or more per year and where massive hyperinflation is not uncommon. For example, in 2018, according to Bloomberg, the International Monetary Fund (IMF) is expecting the inflation rate of Venezuela to reach 13,000 percent.
TechCrunch says that, during an interview with Basis co-founder Nader Al-Naji, they were not able to find out when the Basis tokens would be in circulation.