According to sources, Do Kwon, CEO of Terra creator Terraform Labs, is one of the pseudonymous co-founders of the algorithmic stablecoin Basis Cash(BAC).
But it failed: The token of this long-abandoned project never achieved its target of dollar parity, sank below $1 in early 2021 and was trading well below 1 cent on Wednesday. Now history appears to be repeating itself: UST fell precipitously below its peg in the last three days, dropping as low as 27 cents in early U.S. hours on Wednesday.
Crypto markets and regulators were stunned by UST’s depegging as the once-$15 billion stablecoin continued its downward spiral. Even though BAC’s $54.5 million footprint had a relatively small impact, it offers historical data to determine whether algorithmic stablecoins are feasible or not.
Former Terraform Labs engineer Hyungsuk Kang said Basis Cash was a side project by some of Terra’s early developers, including himself and Kwon. Kang eventually left TFL to build a Terra competitor called Standard Protocol.
“Basis Cash wasn’t tested at the moment, and we weren’t even sure” it would work, Kang said. Kwon “wanted to just test it out. He said that this was a pilot project for doing that.”
On condition of anonymity, another Basis Cash developer confirmed Do Kwon and TFL employees were behind the project.
Both Kang and the anonymous employee cited that Kwon was “Rick Sanchez,” the pseudonymous co-founder. Internal “Basis Cash Korea (BCK)” chat logs reveal Kwon alluding to himself as “Rick.”
(Kwon and his Basis Cash co-founder “Morty” borrowed their pseudonyms from the popular animated TV show “Rick and Morty.”)
Basis Cash never reached the heights of other Kwon-linked crypto projects. Its total value locked (TVL) briefly peaked at $174 million in February 2021, two orders of magnitude below Terra’s $30 billion TVL before this week’s historic sell-off.
Basis Cash (BAC) – Another Algorithmic Stablecoin Pegged to Dollar
Basis Cash and its promise of an algorithmic stablecoin predated crypto Rick and Morty.
An anonymous team of developers – mostly employees of Terraform Labs – modeled Basis Cash after an earlier project called Basis (formerly known as Basecoin).
Basis, an erstwhile venture capital darling, raised $133 million before shutting its doors in 2018 over regulatory concerns. Founder Nader Al-Naji then said that “there would be no way” for Basis’s peg maintenance tokens to avoid securities designations; he shuttered the project rather than fight it out in court.
(Al-Naji would later launch a controversial crypto startup under a pseudonym before ultimately doxxing himself under pressure.)
But Basis’s algorithmic ideals continued to float around stablecoin circles right on through to the heat of DeFi summer 2020, when Rick and Morty stepped in. Kwon and other algorithmic stablecoin adherents have long argued that the decentralized finance space needs a decentralized stable currency without censorship risk or central points of failure. Such an approach contrasts with that of market-leading stablecoins like Tether’s USDT and Circle’s USDC, which maintain their $1 peg by (in theory) backing every digital dollar with their centralized treasuries.
“Yo degens, anyone remember what Basis was? It was one of the early ‘DeFi’ algorithmic stablecoins with high ambitions, but it was shut down due to SEC-related risks,” said Rick’s since-deleted Telegram account in the Basis Cash Telegram channel on Aug. 20, 2020. “Today we’re bringing Basis back from the grave.”
Apparently intrigued by the early ideas behind Basis, Do Kwon directed a select group of TFL employees to resurrect what eventually became Basis Cash, Kang and another early TFL engineer say. The Korea-based project was envisioned as a way to test out the core concepts of the original Basis without falling prey to U.S. regulatory pitfalls.
According to sources, Kwon deliberately distanced himself from the day-to-day operations of the project, though he proposed most of the core ideas behind Basis Cash and its underlying token model. Analogous to UST, which relies on a token-burn mechanic involving its sister coin LUNA, BAC relies on a bonding mechanism to maintain its $1 peg.
Kwon also appeared to serve as a spokesperson for the project on Twitter and other forums under his “Rick” pseudonym (We cannot confirm whether others ever filled in as “Rick,” but Kang, the other Basis Cash builder, and chat logs suggest the moniker primarily belonged to Kwon).
On its website, Basis Cash describes itself as a “Decentralized Stablecoin with an Algorithmic Central Bank,” and in a November 2020 interview, “Rick” shared a vision for Basis Cash similar to that for UST.
“In the long term, we look forward to seeing Basis Cash be used widely as a base layer primitive such that there is organic demand for the asset in many DeFi and commercial settings,” he said over Telegram at the time.
BAC Bonding For USD Peg – Lessons For UST/LUNA From Game Theory & Smart Contract Fail
One of the first examples of an algorithmic stablecoin to be tested in the wild, Basis Cash never found its footing. Game theory and smart contracts were supposed to regulate BAC’s supply to keep it trading at the price of $1, but the token never managed to hold on to its dollar peg.
By all outward appearances, Kwon had nothing to do the Basis Cash project. He has even made statements suggesting he was a critic.
But even amid Basis Cash’s struggles, Kwon’s main account could be spotted from time to time in the project’s Telegram, sans pseudonym.
A user surprised to find Terra’s founder in the Basis Cash Telegram group once asked Kwon what he was doing there.
“I like studying new things. Especially old things that are new again,” he responded.
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Chris Munch is a professional cryptocurrency and blockchain writer with a background in software businesses, and has been involved in marketing within the cryptocurrency space. With a passion for innovation, Chris brings a unique and insightful perspective to the world of crypto and blockchain. Chris has a deep understanding of the economic, psychological, marketing and financial forces that drive the crypto market, and has made a number of accurate calls of major shifts in market trends. He is constantly researching and studying the latest trends and technologies, ensuring that he is always up-to-date on the latest developments in the industry. Chris’ writing is characterized by his ability to explain complex concepts in a clear and concise manner, making it accessible to a wide audience of readers.
