The SEC starts investigating Terra’s UST stablecoin collapse and the attorneys may have a reason to believe that the platform violated federal investor protection regulations so let’s find out more today in our latest cryptocurrency news.
Terra’s UST stablecoin could be the subject of a US SEC investigation. An unnamed source told Bloomberg that the SEC starts investigating Terra’s UST crash and they are looking into whether the way Terraform Labs marketed UST, the stablecoin violated federal investor protection rules. By definition, Terra’s UST should have maintained the US dollar peg and made it redeemable for $1 but unlike other stablecoins, UST relied on an algorithm and not the central user to maintain the peg. When the algorithm seemed to be enough, Terraform Labs called the Luna foundation guard and stepped into providing more backing.
The Luna Foundation Guard bought huge amounts of BTC and other cryptocurrencies back in February as the reserve currencies for UST. So as the run happened on the stablecoin and the price dropped below $1, LFG would use its BTC reserve to buy back enough UST on the market and bring the price back to parity. However, this didn’t work. When BTC experienced a drop in response to the FED raising interest rates by half a point, the next day UST lost its dollar peg. On May 9, UST was trading at $0.79 and in the course of a debacle, UST and LUNA as the governance token for the Terra ecosystem lost a billion.
If the SEC decides to pursue an investigation, it will not be the first time that Terraform Labs hears from the US regulator. As we saw recently, the US District Court of Appeals upheld an order for Terraform Labs CEO Do Kwon to comply with the SEC Subpoena by turning over documents and providing testimony about the Mirror Protocol. Mirror Protocol is a noncustodial trading platform that allows users to trade the Mirrored assets and is meant to be a synthetic version of stocks like Apple and Tesla. A judge overruled Kwon’s appeal recently which argued that the subpoena should have been delivered to his legal counsel and that the company doesn’t have enough presence in the US.
South Korean officials launched an investigation to determine whether the intentional price manipulation and other issues are behind UST’s crash according to the local television network JBTC.