Key takeaways from the SEC suit against Do Kwon and Terra 
The SEC finally caught up with Terra and its founder Do Kwon
Good afternoon, friends!
Well, as you might expect, the SEC finally caught up with Terraform Labs and Do Kwon after he blew up crypto last year and ran. As expected, they’re doing what they do best and suing him and his company for defrauding investors.
For a recap of what happened. Last year, Kwon started a company, Terraform, that created a type of token called an algorithmic stablecoin, this means that instead of maintaining a peg by keeping reserves it uses a complicated algorithm and a secondary paired currency that increases or decreases in volume and can be burned and created through arbitrage to help it maintain its dollar parity.
By April 2022, the market cap of TerraUSD, UST, was approximately $17 billion and it had become the third-largest stablecoin by market cap. This would not last. In May, the coin would lose its dollar cap when something went catastrophically wrong and lost its dollar peg causing a collapse of its sister currency LUNA, which suddenly lost 99% of its value. In a matter of days, wiped out almost $40 billion worth of value, and the entire Terra ecosystem was gone.
Kwon tried to revitalize it with Terra 2.0 and it still exists after a fashion but the original disaster still lingers.
Ever since the implosion of Terra, he’s also been on the run from Korean authorities who issued an arrest warrant for him shortly after the crash. His whereabouts are currently unknown.
Apparently, it doesn’t end there, the SEC is alleging that Kwon transferred 10,000 bitcoins out of his company and the Luna Foundation Guard – which was formed to help save UST when it was collapsing – to a Swiss bank account. He apparently has been converting those coins into cold hard cash.
The SEC claimed that he might have liquidated more than $100 million since the withdrawals started in June 2022.
Within the same document, the SEC also said that Kwon and Terra may have artificially restored the $1 peg of UST when it drifted by soliciting a third party to purchase large amounts of UST when it fell on May 2021.
However, this isn’t where it gets problematic. The SEC is a regulatory body and as a regulator it wants everything it sees to fall under its jurisdiction. As a result, it said that everything involved in the crash including UST, LUNA were securities – because to the SEC everything is a security.
According to crypto and Web3 lawyer Mike Selig, the SEC complaint alleged that UST was a security because it could be traded for LUNA. However, under this theory “nearly anything can be a security.” I don’t know if I need to explain to anyone reading this the total absurdity that this leads to, of course.
We already have numerous crypto projects being stifled by bad laws and regulations. People who are fearful of entering the industry or being chased out because they’re uncertain what to do. There are even people like me – if you’re aware of my story -- where I was imprisoned for not filing a single piece of paper for trading bitcoin peer to peer.
The expansion of regulations has never been good for anyone and we can only expect it to get worse if the SEC seeks to make everything a security. Certainly, we’ve been wondering if it would spell “crypto doom,” if Ethereum became a security because of moving from proof of work into proof of stake, but we’re still here.
As usual, keep an eye out for this week’s news below in the bulleted list and the longer form beneath the fold. We’re in for a darling year, I’m sure! Off the great start.
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Sending Labs looks to enable decentralized messaging for dapps with $12.5M. Sending Labs, a Web3 communication stack, announced it raised $12.5 million for its products that help developers build decentralized messaging products, reported CoinTelegraph.
Dutch authorities play hardball with Tornado Cash developer keeping him in jail until trial. Tornado Cash developer Alexey Pertsev will remain in jail as his trial proceeds after a court decided he was a flight risk and would be held until trial, he has been in jail since his arrest in August, reported CoinDesk.
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