SEC Is Reportedly Probing the Firm Behind Stablecoin TerraUSD
- SEC is investigating whether Terra’s tokens are illegal securities.
- Terra founder Do Kwon and Terraform Labs are already facing scrutiny from SEC over offering the Mirror Protocol.
- However, Terraform is not aware of any SEC probes into UST.
The Securities and Exchange Commission (SEC), which is already investigating Terra (LUNA) tokens following its collapse, is now probing whether Terraform Labs, the company behind UST, violated federal investor protection laws.
The investor protection regulation details regulatory priorities and issues surrounding new financial products, fee structures, and trading strategies.
Did Terraform violate US laws?
Discussing the confidential probe, an unnamed source told Bloomberg that members of the SEC’s Division of Enforcement are examining whether Terraform’s token marketing violated the investor protection rules.
This is a separate probe from the ongoing investigation on the firm and its founder Do Kwon in connection with offering another cryptocurrency project dubbed Mirror Protocol.
The Mirror Protocol trading platform allows users to trade mirrored assets representing synthetic stocks.
Meanwhile, the Singapore-based Terraform noted that it is unaware of any such investigation by the US watchdog. Kwon said in a statement,
“We are not aware of any SEC probes into TerraUSD at this time – we’ve received no such communication from the SEC and are aware of no new investigation outside of that involving Mirror Protocol.”
Terra’s trauma – A brief recall
Terraform Labs, the company behind the token, developed a forex reserve for UST following the criticism faced by algorithmic stablecoins. A separate entity called the Luna Foundation Guard (LFG) stepped in to provide backing.
In February, the LFG created a bitcoin (BTC) denominated reserve for UST and announced plans to hold $10 billion in BTC reserves for the stablecoin. Since then, LFG has been actively purchasing BTC, announcing a sizeable purchase totaling $1.5 billion in May.
LFG would use its BTCs to buy back UST from the market in case the stablecoin price drops below $1. This strategy failed when BTC experienced a sharp downfall on May 7, following Fed’s rise in interest rates by half-point.
Terra investors woke up on May 9, only to fall victim to an unexpected implosion. Bloomberg calls this as one of the biggest crypto busts in history, wiping out billions of dollars in value.
Following this, Terraform relaunched its blockchain and renamed the Luna coin that was struggling close to zero. However, this new version of the blockchain did not include UST.