Major United States-based stablecoin project Basis will shut down operations and return most of its funds to investors, crypto news outlet The Block reports today, Dec. 12.

Citing “multiple people with direct knowledge of the situation,” the reports states that the algorithmic stablecoin project is set to return the majority of the $133 million in funding it raised in a private placement in April. Basis’ investors include major names in venture capital, among them Bain Capital Ventures and Andreessen Horowitz.

The Block reports that the firm plans to communicate directly on the reported shutdown later Wednesday evening, again citing a source with “direct knowledge of the situation.”

In private correspondence with Cointelegraph today, Nevin Freeman, co-founder and CEO of competing stablecoin project Reserve, commented that the move is evidently due to regulatory concerns around one of Basis’ token types. Freeman stated that, as with other algorithmic stablecoins, Basis’ protocol implements a “secondary token,” in this case known as a “bond” token, which needs to be purchased in order for the primary token to keep its stable peg in place.

“In many cases, these secondary ‘share’ or ‘bond’ tokens are securities [under U.S. law],” Freeman told Cointelegraph, implying that the “regulatory headwinds” allegedly behind Basis’ decision to shut down come from the U.S. Securities and Exchange Commission (SEC). Freeman added:

“Since there is only a small set of people who can [legally] buy these ‘share’ or ‘bond’ [unregistered] security tokens, protocols based on this mechanism may be at risk — if nobody wants to buy these tokens when the stablecoin is trading below the pegged price, the peg will just stay broken.”

Freeman –– whose project also completed a funding round earlier this year, with backing from high profile investors including Peter Thiel, Coinbase and Distributed Global –– also noted that not all algorithmic stablecoins will “suffer the same fate,” continuing, “[d]esigns can even include ‘share’ tokens, so long as they aren’t the direct source of capital for purchasing stablecoins out of circulation.”

Basis did not respond to Cointelegraph’s requests for comments by press time.

Various models of stablecoins have surged in popularity this year, with major fiat-back coins gaining the spotlight in the past few months. In October, top crypto exchanges Huobi and OKEx both added four major fiat-backed stablecoins –– USD Coin (USDC), True USD (TUSD), Paxos (PAX) and the Gemini dollar (GUSD) –– to their platforms.

This week, research firm Diar published an analysis saying that the adoption of stablecoins is growing based on the increasing number of on-chain transactions. As per the study, the same four major stablecoins to date have broken the $5 billion mark in on-chain transactions within the three-month period.