Decrypting The Truth Behind UST Crash: SEC Investigates the New Threat to Terra!

According to sources, SEC enforcement attorneys are also looking into whether Terraform Labs, the company behind the coin known as UST, violated securities and investment product rules. Through an algorithm and trade in a related token called Luna, the stablecoin was designed to maintain a 1-to-1 peg to the US dollar.

It all began with the downfall of UST, which began on May 7, and sent shockwaves through the cryptocurrency markets. Treasury Secretary, Janet Yellen, stated the incident demonstrated the dangers of tokens ostensibly pegged to the US dollar, and Acting US Comptroller of the Currency, Michael Hsu, termed it a “wake-up call” in the aftermath.

The SEC is also intrigued by the UST approach

As reported by Bloomberg, Terraform and its CEO, Do Kwon, are already under investigation by the SEC for promoting the ‘Mirror Protocol’- which allows consumers to exchange digital assets that mimic the price of US stocks. Terraform and Kwon have not been charged with any misconduct regarding UST.

Mirror Protocol’s reputation takes a hit

Surprisingly, the Securities and Exchange Commission (SEC) has said nothing about it. In a response, Singapore-based Terraform Labs stated that it was ignorant of the SEC’s investigation into UST. 

“At this time, we are not aware of any SEC probes involving TerraUSD – we’ve received no such information from the SEC and are not aware of any additional inquiry outside of the Mirror Protocol investigation,” Kwon said in a second statement.

The SEC may have authority over all virtual currencies

In the crypto world, stablecoins are essential because their relatively stable value may provide a haven for many investors in a volatile market. Unlike other cryptocurrencies that claim to be backed by cash and other assets, UST depended on algorithms and trading incentives to maintain a constant price.

Every time a UST token was created, a dollar’s worth of Luna was destroyed (the value of which was set by the market), and vice versa. Traders were enticed to swap UST for Luna if the price fell below $1, reducing the amount of the former in circulation and driving up its price. To achieve the same result, a computer program would be used in tandem. If the value of UST rose beyond $1, the opposite happened.

For example, if Americans acquire a virtual currency to fund a corporation or project to benefit from the efforts of the persons involved, the virtual currency may fall within the SEC’s jurisdiction. This conclusion is based on a 1946 Supreme Court judgment that defined investment contracts in the United States. If a crypto firm has assets, the agency believes, it may be subject to investment-company restrictions.

Grounded on the allegations it was revealed that BlockFiInc, a popular crypto platform, was operating as an unrecorded investment company in February, according to the controller.

” Because it’s an issuer of securities engaged in the business of investing, reinvesting, retaining, holding, or trading in securities and retaining investment securities,” the controller said. 

Without admitting to the contended crimes, the business agreed to pay $100 million in forfeitures to the SEC and state controllers.

The whole ecosystem has witnessed Terra’s demise. It was one of the greatest cryptocurrency busts ever, wiping out tens of billions of dollars in value. Terraform’s blockchain and the Luna token, which plummeted to near zero during the fiasco, have since been resurrected under new names. The TerraUSD stablecoin is no longer available in the updated version.

Moreover, according to Bloomberg News, Seoul police are investigating allegations that Terraform Labs workers misappropriated Bitcoin holdings to keep the UST’s dollar peg. A mail seeking comment on the probe did not receive a swift reply.

Bulls criticize the outburst

Michaël van de Poppe, a popular crypto analyst, commented that he ‘could not believe’ that Do Kwon has been depositing $80 million into his bank accounts. He added that Kwon deserves jail like other defaulters. 

Meanwhile, Lark Davis commented that “This fiasco is bigger than it appears”. 

This report astounded Jim Cramer as well.

Photo of Nidhi Kolhapur
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