Terraform Labs, the company behind TerraUSD (UST), and its creator Do Kwon have agreed to pay $4.5 billion in damages to settle an SEC civil case.
TerraUSD (UST) was introduced in 2018 as a stablecoin, a cryptocurrency that is dependent on the value of the US dollar. UST’s anchor was maintained by an algorithm, in contrast to other stablecoins that were supported by real estate. This system utilized the price fluctuations of a sister token known as Luna to counteract the value of UST. However, the detachment of UST from the dollar in May 2022 initiated a fatal spiral. The collapse of UST’s price caused investors to lose confidence in the system, resulting in a substantial sell-off of both UST and Luna.
The Luna token’s price plummeted to approximately zero, further exacerbated the instability of UST. This cascading effect resulted in substantial financial losses for investors who had made substantial investments in the Terra ecosystem.
The SEC initiated an investigation into Do Kwon and Terraform Labs subsequent to the collapse of the UST. The Commission charged them with neglecting to adequately explain the perils associated with UST and its algorithmic methodology, thereby deceiving investors. Furthermore, the SEC has alleged that Terraform Labs employed deceptive marketing strategies to portray UST as a more dependable and secure investment than it actually was.
The SEC has secured a significant victory with the $4.5 billion settlement, which serves as evidence of its commitment to holding bitcoin businesses accountable for their actions. However, the settlement does not resolve all of the unresolved issues associated with the UST disaster. Officials in the United States are reportedly making efforts to relocate Do Kwon from Montenegro, where he is currently believed to be residing, as he is still under investigation for criminal activities.
Additionally, the settlement does not provide compensation for investors’ losses. Despite its status as a regulatory body that prioritizes investor protection, the Securities and Exchange Commission (SEC) is incapable of compensating individuals who experienced financial losses as a consequence of the UST’s collapse. This suggests that investors will likely need to file separate lawsuits against Terraform Labs or Do Kwon in order to recoup their losses.
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