Terra lawsuit a ‘roadmap’ to attack other stablecoins: Delphi Labs

According to the lawyer, the US Securities and Exchange Commission (SEC) lawsuit against Terraform Labs and its co-founder Do Kwon can be seen as the SEC’s “roadmap” to destroy other stablecoins.

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 its complaint against Kwon and Terraform were “more thorough than usual.”

Shapiro’s analysis follows a Feb. 16 SEC lawsuit against Kwon and Terraform alleging they “organized[ed] multi-billion dollar crypto asset securities scam using an algorithmic stablecoin and other crypto asset securities.”

Shapiro suggested that the case could serve as a roadmap for how the regulator could sue other stablecoin issuers in the future. He acknowledged that the SEC has proven that Terra’s algorithmic stablecoin, TerraClassicUSD (USTC), is a security:

“[The SEC] will argue that the integration, promotion, marketing, commercial transactions, etc. that create stablecoin ecosystems are “others’ efforts” that are “reasonably expected” and can result in profits due to stablecoins.”

He pointed out that the SEC applied four aspects of the Howey test to prove that USTC, Terra Luna Classic (LUNC)—renamed from Terra (LUNA)—and Wrapped LUNA (wLUNA) are securities under US securities laws.

Delphi Labs General Counsel Gabriel Shapiro is considering an SEC lawsuit against Terraform Labs and its CEO Do Kwon. Source: Twitter.

The SEC also alleged that Terraform Labs violated U.S. securities laws by launching the Mirror protocol, which allowed users to create what Terraform called “mAsset”, a cryptographic version of an asset that “mirrors” the price behavior of other assets such as like shares. .

The regulator said that Terraform Labs made this securities exchange through the MIR token, which Shapiro considers the “first” of all cryptocurrency-related lawsuits filed by the SEC.

Shapiro noted that the SEC’s assertion that wLUNA constituted a “receipt” for a security was another “first”.

Delphi Labs General Counsel Gabriel Shapiro’s analysis of the SEC lawsuit filed against Terraform Labs and its CEO Do Kwon. Source: Twitter.

Ryan Sean Adams, host of the crypto-focused podcast Bankless, made a similar argument to his 221,300 Twitter followers on Feb. 16, noting that a legal win over Terraform Labs would make it easier to prosecute other stablecoin issuers.

Terra-related tokens collapsed infamously in May 2022, partly caused by the loss of the USTC peg to the US dollar. Since LUNC was closely linked to USTC, its price dropped by almost 100% and caused a wider downturn in the crypto markets, wiping out about $40 billion from the crypto markets.

Why the SEC wants to ban staking and stablecoins under scrutiny – watch The Market Report live

Kwon claims he is not “on the run” and is believed to be living in Serbia, according to South Korean officials who issued a warrant for his arrest.

Earlier in February, two South Korean prosecutors flew to the Balkan state to look for Kwon, but the search attempt was unsuccessful.

Cryptooshala contacted Terraform Labs for comment on the lawsuit but received no immediate response.

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