Terra’s UST stablecoin could become the subject of an investigation by the US Securities and Exchange Commission.
An unnamed source told Bloomberg that the regulator’s enforcement attorneys are looking into the algorithm of the way Terraform Labs marketed UST. stablecoinViolated federal investor protection regulations.
By definition, Terra’s UST was to maintain its US dollar peg and always be redeemable for $1. But unlike other stablecoins, UST relies on an algorithm, not a central issuer, to maintain its peg. When the algorithm appeared to be long enough, Terraform Labs proceeded to provide support through a separate entity called the Luna Foundation Guard (LFG).
Luna Foundation Guard purchased in bulk Bitcoin and other cryptocurrencies, starting in February as reserve currencies for the UST. So if there is a run on the stablecoin, and the price drops below $1, LFG will use its bitcoin reserves to buy back enough UST on the market to make it worth the dollar.
it did not work.
When bitcoin experienced a sharp price drop in response to a half-point hike in interest rates by the Federal Reserve on Friday, May 7, UST lost its dollar peg the following day.
As of Monday, May 9, the UST was trading at $0.79. During the entire debacle, governance tokens for the Terra ecosystem, UST and LUNA, would lose combined billions.
If the SEC decides to pursue the investigation, it would not be the first time Terraform Labs has heard from a US regulator.
Yesterday, the US District Court of Appeals upheld an order for Terraform Labs CEO Do Kwon to comply with an SEC subpoena by overturning documents and providing testimony about the Mirror Protocol.
Mirror Protocol is a non-custodial trading platform that allows its users to trade mirrored assets, or mAssets, as a synthetic version of stocks such as Tesla and Apple.
On Wednesday, a judge dismissed Kwon’s appeal, arguing that the summons should have been given to his legal counsel and that Terraform Labs does not have a substantial presence in the United States.
South Korean authorities have launched an investigation to determine whether intentional price manipulation and other issues may have been behind UST’s crash last month, according to a local television network. JTBC,
Want to become a crypto expert? Get the best of Decrypt straight to your inbox.
Receive the biggest crypto news + weekly roundups and more!
