Terra's ex-employees are shocked: Do Kwon is the driving force behind the failed stablecoin project Basis Cash

Intrigued by the early ideas behind Basis, Do Kwon appointed a group of employees to "resurrect" Basecoin, eventually creating Basis Cash, seeing it as a way to test the core concept of an algorithmic stablecoin.

By | Coindesk, compiled | PANews

Do Kwon, CEO of Terraform Labs, the development team behind Terra , is one of the anonymous co-founders of the algorithmic stable currency project Basis Cash, but the project has completely failed.

Basis Cash (BAC) was launched on Ethereum at the end of 2020. At that time, the entire DeFi market was very hot. What's more interesting is that the time of BAC's launch was just before the launch of Terra's flagship stablecoin, TerraUSD (UST). Like UST, BAC attempts to maintain the dollar peg algorithmically rather than through a collateral model.

The problem is, BAC failed, for one simple reason: the project’s token never reached its dollar-peg target, and fell below $1 in early 2021, trading at just $0.007 at the time of writing. Now, the same thing is happening with UST - which has de-pegged from the US dollar anchor for the past three days and fell to a low of 27 cents in the early hours of Wednesday US time.

It is no exaggeration to say that the "UST dollar decoupling incident" shocked the encryption market and regulators, because the market value of UST once reached 15 billion US dollars, but now it has begun to spiral downward. Of course, for the encryption market, BAC's market capitalization of approximately $54.5 million may not have much impact, but UST is different. UST can almost be said to be the "benchmark" of algorithmic stablecoins, so this incident is likely to make many Industry observers feel that algorithmic stablecoins are not viable.

Hyungsuk Kang, a former engineer of Terraform Labs (TFL), said that Basis Cash is actually a sub-project created by the early founders of Terra, including himself and Do Kwon. Ultimately, Hyungsuk Kang left Terraform Labs to build a project called Standard Protocol, which later also became a competitor to Terra. Hyungsuk Kang further explained: “Basis Cash was not tested, we were not even sure if it would be successful at the time, Do Kwon just wanted to test it because he said it was a pilot project.”

Another person who did not want to be named, who was also involved in the construction of the Basis Cash project, also confirmed that Do Kwon and Terraform Labs employees provided support for the BAC project.

Hyungsuk Kang, an anonymous employee, confirmed that Do Kwon is actually BAC's pseudonym co-founder "Rick Sanchez", and the internal chat records of the project's "Basis Cash Korea (BCK)" also show that Do Kwon refers to himself as "Rick" .

(Do Kwon and "Morty," another Basis Cash co-founder, borrowed both aliases from the animated TV show "Rick and Morty.")

So far, Do Kwon has not responded to the matter.

Frankly, Basis Cash has never reached similar heights compared to Do Kwon's other crypto projects, with its Total Volume Locked (TVL) briefly peaking at $174 million in February 2021, compared to Terra's previous $30 billion locked. Position volumes are two orders of magnitude lower.

In fact, Do Kwon and another co-founder were not the first to get involved with Basis Cash and its algorithmic stablecoin project.

An anonymous construction team — mostly Terraform Labs employees — simulated the launch of Basis Cash after an earlier project called Basis (formerly known as Basecoin), according to related chats.

Once a darling of venture capital, Basis managed to raise $133 million in funding before shutting down due to regulatory concerns in 2018. But according to project founder Nader Al-Naji, there was "no way" for the Basis token to avoid being designated as a security, so the project had to be shut down or face regulatory penalties and no use fighting it in court.

Al-Naji later also started a controversial cryptocurrency startup under a pseudonym.

However, when the time came to 2020, the "DeFi boom" at that time attracted Do Kwon to intervene, and Basis's algorithmic stablecoin ideals continued to float in the stablecoin circle. Do Kwon and other algorithmic stablecoin advocates have long argued that the DeFi market needs a decentralized stablecoin, so that there is no censorship risk or central point of failure. Do Kwon's idea stands in stark contrast to Tether's USD stablecoin USDT, and Circle's USD stablecoin USDC , both of which use their centralized reserve vaults to keep stablecoins pegged to $1, at least in theory .

On August 20, 2020, Do Kwon, who used the pseudonym "Rick" at the time, said in the Basis Cash Telegram channel: " Guys, does anyone remember what Basis is? It's an ambitious 'DeFi' algorithmic stablecoin." One, but was forced to close due to SEC-related regulatory risks, and today we are bringing it back from the grave."

Hyungsuk Kang and another early TFL engineer also revealed that because of being very interested in the early ideas behind Basis, Do Kwon specially appointed a group of employees to "resurrect" the project, and finally created Basis Cash, which he regarded as a is a way to test the core concepts of algorithmic stablecoins.

It is reported that although Do Kwon came up with most of the core ideas behind Basis Cash and its underlying token model, he will deliberately distance himself from the day-to-day operations of the project. UST relies on the token burning mechanism of its sister coin LUNA , while BAC also relies on a similar binding mechanism to maintain its $1 anchor price.

Not only that, but Do Kwon also seems to be a spokesperson for the Basis Cash project under the pseudonym "Rick" on Twitter and other social media forums (though it is not possible to confirm whether others have also used the pseudonym "Rick", but according to Basis Cash One participant, Hyungsuk Kang's chat records, indicated that Do Kwon did exactly that).

On the official website, Basis Cash describes itself as a "decentralized stablecoin with an algorithmic central bank", and in an interview in November 2020, "Rick" also shared the vision of Basis Cash - of course, with the current UST is very similar, he said on Telegram at the time: "In the long run, we look forward to seeing Basis Cash widely used as a stablecoin base layer primitive to create more organic stablecoin assets in many DeFi and business environments." need."

One of the early examples of the algorithmic stablecoin model tested, Basis Cash never took off. Token economics and smart contracts were supposed to further regulate BAC’s token supply so that it would always trade at $1, but in the end the token never managed to be pegged to the U.S. dollar.

Even when Basis Cash was in trouble, Do Kwon's master account appeared from time to time in the project's Telegram group, without using a pseudonym. It is reported that a user was surprised to find Do Kwon, the founder of Terra, in the Basis Cash Telegram group, and asked him why he appeared there. At that time, he replied - "I like to study new things, especially renovation."