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WHAT’S THE RETURN POTENTIAL OF A $1 CRYPTO?

Good morning, Term Sheet readers. Jen Wieczner filling in for Polina today. Follow me on Twitter @jenwieczner or email me at jen.wieczner@fortune.com.

On Wednesday, my colleague Robert Hackett brought you the news that the startup behind cryptocurrency Basis raised $133 million from Bain Capital Ventures, Andreessen Horowitz and several other investors.

But the deal didn’t at first seem to add up. See, Basis is a cryptocurrency that will be pegged to the U.S. dollar, or a so-called stablecoin. That means the price of Basis will always be roughly $1. The VC firms weren’t taking any equity in Basis’s parent company, Intangible Labs—they were just getting the Basis tokens, whose price, by design, would never rise.

See where I’m going with this? I couldn’t understand how the VC’s expected to get any return on their investment.

But Basis founder and CEO Nader Al-Naji dropped by Fortune’s offices Thursday to talk to me and Robert on our new weekly video show, “Balancing the Ledger.” (See the new episode here). And it turns out, Basis has created a unique model to reward its investors that compensates for the fact that its cryptocurrency will never appreciate (nor, I suppose, its theoretical equity, as it hasn’t sold any stock).

The way Basis maintains its fixed $1 price is by algorithmically adjusting its supply to demand—the same way central banks can print money. Over time, as new Basis tokens are “minted,” more will accrue to investors, similar to a vesting process. So the VC’s won’t measure their returns in price fluctuations, but in their number of $1 coins.

By way of background, Al-Naji is a 2012 Princeton graduate and a former algorithmic trader at quantitative hedge fund D.E. Shaw. He also did a stint as a software engineer at Google.

SILICON VALLEY VS. NEW YORK: CRYPTO EDITION

My colleague (and longtime Term Sheet columnist) Dan Primack used to regularly debate the virtues of West Coast vs. East Coast tech in the space of this newsletter.

That debate came to a head for cryptocurrency entrepreneurs this week, after the New York attorney general launched a fact-finding probe into 13 cryptocurrency exchanges. That prompted Jesse Powell, the CEO of Bitcoin exchange Kraken, to lash out at what he called the “audacity” of the New York regulators. Kraken pulled out of the New York market in 2015, Powell tweeted, after the state instituted the so-called BitLicense, which many local cryptocurrency businesses must obtain.

“Kraken left New York because New York is hostile to crypto, and this ‘questionnaire’ we received today proves that New York is not only hostile to crypto, it is hostile to business,” Powell wrote in a message posted on Twitter.

It’s not clear yet whether others in the cryptocurrency industry—or tech at large—share Powell’s views, but I’d love to hear your opinions on this subject: DM me on Twitter @jenwieczner or email me at jen.wieczner@fortune.com

Polina returns Monday.

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