Leading crypto project Terraform and its co-founder Do Kwon have filed a lawsuit against the U.S. Securities and Exchange Commission (SEC). This move comes at a time when the SEC has been suing several cryptocurrency companies for issuing unregistered securities.
Why is the company suing the SEC?
Terraform is the company running the Terra decentralized protocol and the Luna cryptocurrency. Together with the co-founder Do Kwon, the company was served with two subpoenas at the Messari Mainnet cryptocurrency conference in New York on September 20.
In this lawsuit, the company is contesting the subpoenas issued by the SEC.
Here are some of the issues Terraform raised in the lawsuit.
- The two subpoenas were improperly served and issued.
- The agency did not keep the investigation of Terra’s Mirror Protocol confidential. This decentralized finance protocol enables users to trade assets that monitor real assets such as Tesla or Netflix shares.
- The agency violated its own rules by hiring a private process service firm to serve the subpoena in a crowded public conference, which is intimidating and embarrassing.
- Do Kwon had previously had a five-hour Webex call with the SEC officials to explain how the Terra’s Mirror Protocol works.
While the SEC and other financial regulators have been focused on targeting stablecoins, their issue with Terra is the Mirror Protocol launched in December 2020.
So, exactly how does Terra function?
The company is ranked as a leading decentralized finance (DeFi) project. It’s also behind the algorithmic stablecoin Terra. Instead of storing assets and cash as collateral, Terra’s stablecoin, dubbed UST, is backed by the company’s own digital coin, Luna.
Recently, a lot of money has been channelled to UST, which has, in turn, affected the price of Luna. Having increased by over 6,200% on the year, Luna is now the 12th-largest cryptocurrency by market capitalization.
After the Mirror Protocol was launched, the company said that this is a new way for retail investors to access the U.S. equities markets. In addition, users could mint the “Mirrored Assets” (mAssets), which ideally mirror the price behavior of real-world assets that might not be accessible to them.
Summary
As the SEC continues to focus on the different products and services provided by cryptocurrency companies, Terraform have taken a different route by suing the agency. While the company insists that they have provided the necessary information about the Mirror Protocol, it will be interesting to see how this lawsuit plays out.
