Terra’s lawsuit could be example avenue for SEC to ‘hack’ other stablecoins

The U.S. Securities and Exchange Commission’s (SEC) lawsuit against Terraform Labs and its co-founder Do Kwon can be seen as a “roadmap” for the SEC to bring down other stablecoins, according to a lawyer.

Gabriel Shapiro, general counsel at investment firm Delphi Labs, explained to his 33,800 Twitter followers on Feb. 16 that the SEC’s arguments in the complaint against Kwon and Terraform were “more thorough than usual.”

Shapiro analyzed that the SEC accused Terraform of orchestrating a multibillion-dollar crypto securities fraud involving algorithmic stablecoins and other crypto securities. According to him, the lawsuit could serve as a “roadmap” for how regulators can sue other stablecoin issuers in the future. He acknowledges that the SEC has argued that Terra’s algorithmic stablecoin, TerraClassicUSD (USTC), formerly known as TerraUSD (UST), may constitute securities: “The SEC claims that the integration of advertising, marketing, commercial transactions, etc. The ecosystem can make other people think of generating profit.”

He noted that the SEC applied four aspects of the Howey test to argue that USTC, Terra Classic (LUNC) — formerly Terra (LUNA) — and Wrapped LUNA Classic (WLUNC) constitute securities under U.S. securities laws.

The SEC also argued that Terraform Labs violated U.S. securities laws by launching the Mirror Protocol, which allows users to create what Terraform calls a “mAsset” — a cryptocurrency version of a “mirror” asset that enables price action on other assets, such as stocks. The regulator claims that Terraform Labs has conducted this security-based exchange via Mirroring Protocol (MIR) tokens — something Shapiro believes first appeared in a crypto-related lawsuit filed by the SEC.

On Feb. 16, Ryan Sean Adams, host of the crypto-focused Bankless podcast, made a similar argument to his 221,300 Twitter followers, noting that a legal victory over Terraform Labs would help to clear the Easily crush other stablecoin issuers.

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As reported by Cointelegraph

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