Tai Mo Shan, a subsidiary of cryptocurrency company Jump Crypto, has settled with the SEC for $123 million.

Tai Mo Shan Agrees to Settle with SEC for $123 Million over Misleading Investors about TerraUSD’s Stability

On December 20th, Tai Mo Shan, a subsidiary of Jump Crypto, reached an agreement with the United States Securities and Exchange Commission (SEC) to settle for $123 million. The settlement stems from allegations that Tai Mo Shan misled investors regarding the stability of TerraUSD (UST), an algorithmic stablecoin, prior to its collapse.

Background on the SEC’s Allegations

According to the SEC, Tai Mo Shan entered into an agreement with Terraform Labs in 2021 to purchase a significant amount of Terra LUNA (LUNA) at a discounted rate. In an effort to maintain the algorithmic stablecoin’s 1:1 peg with the US dollar, Tai Mo Shan then acquired approximately $20 million worth of UST.

The SEC Chair, Gary Gensler, commented on the collapse of UST, stating:

"The impact reverberated throughout the crypto markets, eventually costing the savings of countless investors. Regardless of the labels, crypto market participants should comply with the securities laws where applicable and not deceive the public."

TerraUSD’s Collapse and its Impact

In May 2022, TerraUSD suffered a catastrophic collapse, sending shockwaves through the crypto community. The algorithmic stablecoin, which maintained its peg with the US dollar through software and digital asset collateral, lost its value as investors began to panic-sell their UST holdings.

The consequences of the collapse were far-reaching, leading to significant losses for countless investors. Furthermore, it had a profound impact on stablecoin regulation, influencing proposals such as the Lummis-Gillibrand Stablecoin Act of 2024, which prohibits algorithmic stablecoins.

Understanding the TerraUSD Collapse

To comprehend the extent of the collapse, let’s delve into the events that transpired in May 2022.

• On May 8th, a large whale dumped approximately $285 million worth of UST onto the market, causing the stablecoin to lose its 1:1 dollar peg and trade at a spot price of $0.98.
• Two days later, on May 10th, TerraUSD crashed to $0.67, triggering a cascade of liquidations among long-leveraged traders and exacerbating fears among investors.
• As the market capitalization of UST surpassed the underlying LUNA reserves serving as collateral for the algorithmic stablecoin, it became clear that the stablecoin lacked sufficient backing – leading to a complete collapse in its price.

Aftermath and Consequences

The collapse of TerraUSD led to a formal investigation by US federal authorities into Terraform Labs and its founder, Do Kwon. The investigation culminated in charges and a steep settlement of $4.4 billion for the parties involved.

Conclusion and Future Implications

Tai Mo Shan’s agreement with the SEC serves as a stark reminder of the importance of compliance with securities laws in the crypto industry. As investors continue to explore new asset classes, it is crucial that market participants prioritize transparency and adherence to regulatory requirements to prevent similar catastrophes from occurring in the future.

The collapse of TerraUSD has far-reaching implications for stablecoin regulation, highlighting the need for more stringent oversight and safeguards to protect investors’ interests. As we move forward, it is essential to learn from past mistakes and adapt to emerging trends in the crypto market.

Related Topics:

• Stablecoins Will See Explosive Growth in 2025 as World Embraces Asset Class: An article discussing the potential for stablecoin growth in the coming years.
• Unstablecoins: Depegging, Bank Runs, and Other Risks Loom: A magazine piece exploring the risks associated with algorithmic stablecoins.

References:

• SEC Press Release: Tai Mo Shan Agrees to Settle Charges Related to TerraUSD (UST) Algorithmic Stablecoin
• Gary Gensler’s Statement on the Collapse of UST