‘SEC sues Do Kwon’

Last Updated: 17 February 2023

The US Securities and Exchange Commission is going to prepare a case against Terraform Labs, the company behind stablecoin TerraUSD, reports Bloomberg. Do Kwon is the well-known former CEO of this crypto token, the first domino to topple last year.

The SEC is going to investigate whether the company behind this token misled investors. In particular, they are investigating the 1-to-1 link to the US dollar. The SEC is also going to claim that TerraUSD is not registered with them as an investment product.

What was the model of TerraUSD again? TerraUSD ($UST) was linked to a sister token Luna, whose price is determined by the market. 1 UST equals $1 of Luna, so the number of Luna for 1 UST varied, but a holder would always receive $1 in return for 1 UST. This algorithmic experiment failed miserably in May 2022, when the value under stablecoin plunged.

Indeed, TerraUSD was very risky because it was not backed by dollars, government securities or other traditional assets as many other stablecoins are such as Tether USDT. In summary, three events can be identified as to why UST went down. Two traders exchanged 185 million UST for USDC shortly after each other, which made UST’s coverage weak and forced Terraform Labs to add USD2 billion of UST. This led to much turmoil that caused others to trade in their UST as well, eventually crashing LUNA and UST.

The SEC refused to confirm the charges to Bloomberg, but it is obvious that after BUSD, Binance’s stablecoin, now this stablecoin too will come under the scrutiny of the authorities.

The collapse of TerraUSD led to a domino effect, as funds such as Three Arrows Capital, Voyager, Alameda and FTX were also directly and indirectly linked to this weak currency with no real coverage.

Founder Do Kwon is also wanted by the authorities of his home country South Korea and is in hiding in Serbia, which has no extradition treaty with South Korea.

Author
  • Gabriele Spapperi

    Gabriele Spapperi is a veteran cryptocurrency investor and blockchain technology specialist. He became fascinated with Bitcoin and distributed ledgers while studying computer science at MIT in 2011.

    Since 2013, Gabriele has actively traded major cryptocurrencies and identified early-stage projects to invest in. He contributes articles to leading fintech publications sharing his insights on blockchain technology, crypto markets, and trading strategies.

    With over a decade of experience in the crypto space, Gabriele provides reliable insights and analysis on the latest developments in digital assets and blockchain platforms. When he's not analyzing crypto markets, Gabriele enjoys travel, golf, and fine wine. He currently resides in Austin, Texas.

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