SEC Investigating UST Stablecoin Blowup in Fresh Threat to Terra

The US Securities and Exchange Commission is investigating whether the marketing of the TerraUSD stablecoin before it crashed last month violated federal investor-protection regulations, according to a person familiar with the matter.

SEC enforcement attorneys are looking into whether Terraform Labs, the firm behind the coin also known as UST, broke rules for securities and investment products, said the person who asked not to be named discussing the confidential probe. The stablecoin was supposed to maintain a 1-to-1 peg to the US dollar through an algorithm and trading in a related token called Luna.

The implosion of UST starting on May 7 sent shock waves across crypto markets. In the aftermath, Treasury Secretary Janet Yellen said the episode exposed the dangers of tokens that purport to be pegged to the US dollar and Acting US Comptroller of the Currency Michael Hsu called it a “wake-up call.”

The SEC investigation may ratchet up pressure on Terraform and its Chief Executive Officer Do Kwon, which are already facing scrutiny from the regulator for offering another crypto project known as the Mirror Protocol, which lets people to trade digital assets that track the price of US stocks. Neither Terraform nor Kwon has been accused of any wrongdoing related to UST.

The SEC declined to comment. Terraform Labs, which is based in Singapore, said in a statement that it wasn’t aware of an SEC investigation into UST. “We are not aware of any SEC probes into TerraUSD at this time - we’ve received no such communication from the SEC and are aware of no new investigation outside of that involving Mirror Protocol,” Kwon said in a separate statement.