Terra is suing a “roadmap” to attack other stablecoins: Delphi Labs
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The United States Securities and Exchange Commission (SEC) lawsuit against Terraform Labs and its co-founder Do Kwon could be seen as the SEC’s “roadmap” to take down other stablecoins, according to an attorney.
Gabriel Shapiro, general counsel of investment firm Delphi Labs, told his 33,800 Twitter followers on February 16 that the SEC’s arguments in its lawsuit against Kwon and Terraform were “more thorough than usual.”
Phew boy, a lot to digest in the SEC lawsuit against Do Kwon and Terraform Labs
Right off the bat, a very interesting fact is that the SEC is more thorough than usual – specifically running the Howey test on various assets (UST, LUNA and wLUNA) and also claiming that… pic.twitter.com/qHuL6mKpeo
— _gabrielShapir0 (@lex_node) February 16, 2023
Shapiro’s analysis follows the SEC’s Feb. 16 lawsuit against Kwon and Terraform alleging they “orchestrated a multi-billion dollar crypto-asset securities fraud using an algorithmic stablecoin and other crypto-asset securities.”
Shapiro suggested the case could serve as a “roadmap” for how the regulator might sue other stablecoin issuers in the future. He acknowledged that the SEC has argued that Terra’s algorithmic stablecoin, TerraClassicUSD (USTC), is a security:
“(The SEC) will assert that integration, promotion, marketing, trades, etc. in building the stablecoin ecosystems are ‘efforts of others’ that are ‘reasonably’ expected and may result in profits associated with the stables.”
He noted that the SEC used the four-point Howey test to argue that USTC, Terra Luna Classic (LUNC) – renamed from Terra (LUNA) – and Wrapped LUNA (wLUNA) were all post-US securities. securities laws.
Gabriel Shapiro, General Counsel of Delphi Labs, accepts the SEC’s lawsuit against Terraform Labs and its CEO, Do Kwon. Source: Twitter.
The SEC also argued that Terraform Labs violated U.S. securities laws by adopting the Mirror protocol, which allowed its users to create what it calls a “mAsset,” a crypto version of an asset that mirrors the price behavior of other assets like stocks “reflects”. .
The regulator claimed Terraform Labs committed this security-based swap over the MIR token — which Shapiro says is a “first” of all cryptocurrency-related lawsuits filed by the SEC.
Shapiro noted that the SEC’s claim that wLUNA represents a “receipt” for a security is another “first.”
Delphi Labs General Counsel Gabriel Shapiro’s analysis of the SEC’s lawsuit against Terraform Labs and its CEO, Do Kwon. Source: Twitter.
Ryan Sean Adams, the host of crypto-focused podcast Bankless, made a similar argument to his 221,300 Twitter followers on Feb. 16, noting that a legal victory over Terraform Labs would make it easier to prosecute other stablecoin issuers.
Gensler’s next strategy is to go after Do Kwon and UST because he knows no one will defend them and if he wins he will set a broad precedent for more control over crypto.
It’s an evil genius. https://t.co/FDLoeVcTLb
— RYAN SΞAN ADAMS – rsa.eth (@RyanSAdams) February 16, 2023
The tokens linked to Terra infamously crashed in May 2022, partly triggered when USTC lost its peg to the US dollar. Since LUNC was closely associated with USTC, its price fell by virtually 100%, triggering a broader downturn in crypto markets, wiping approximately $40 billion from crypto markets.
See also: Why the SEC wants to scrutinize crypto staking and stablecoins – Watch the market report live
Kwon claims he is not “on the run” and is believed to be in Serbia, according to South Korean officials who have issued an arrest warrant for him.
In early February, two South Korean prosecutors flew to the Balkan country to find Kwon, but the search was unsuccessful.
Cointelegraph contacted Terraform Labs for comment on the lawsuit, but there was no immediate response.
