Thursday, December 9

Terraform Labs sues the SEC, what happened?

Last Friday Terraform Labs and its co-founder, Do Kwon, filed a lawsuit with the United States Securities and Exchange Commission (SEC). Why? We tell you!

Frictions continue between regulators and the crypto world

The lawsuit, which was first confirmed by CoinDesk, seeks to contest subpoenas issued by the SEC following a dialogue about Mirror Protocol. However, understanding the root of the problem requires a better understanding of the parties.

In this way, Terraform Labs was founded in 2018 with the aim of rethinking finance by building a decentralized and priced cryptocurrency. Therefore, the plan is to use the Terra Blockchain to create a completely independent digital financial system.

And Mirror Protocol, a product of the Terra team, is a decentralized finance (DeFi) protocol powered by smart contracts on Terra’s network and enables synthetic assets called mAssets. Basically these synthetic assets replicate the behavior of the price of other commercial assets; such as, for example, shares of Tesla, Google, Apple, Microsoft, among others.

Meanwhile, the United States Securities and Exchange Commission (SEC) has stepped up its regulatory actions in the cryptocurrency environment. Thus, the SEC has opened an investigation into Terraform Labs, specifically regarding Protocol Mirror.

According to the lawsuit, the SEC contacted Kwon in May; particularly to talk about the operation of the protocol and the connection of the company. Apparently Kwon voluntarily met with SEC attorneys and answered all of their questions.

However, the SEC subsequently requested Terraform to voluntarily submit documents on the matter. And, in September, the SEC, still in discussions with the Terra parties, issued subpoenas for the parties using a private company called “Cavalier Courier And Process Services” to deliver them on the Messari Mainnet.

Terraform allege irregularities in the process

Therefore, the lawsuit not only seeks to dispute the subpoena, but also alleges that the SEC violated its own regulations by hiring a third party to issue the subpoena at a well attended conference. Thus, they allege that it was a means of “publicly intimidating and humiliating.”

“In addition to breaking its service rules, the SEC’s behavior here violated its rules … which required it to maintain the confidentiality of formal investigation orders,” the lawsuit maintains.

In this way, the lawsuit requests the annulment of the summons and damages, including the attorneys’ fees.

Friction can favor regulation

In accordance with DecryptDuring the Yahoo Finance All Markets Summit yesterday, Terraform co-founder Kwon suggested that friction between regulators and the crypto world generally leads to “frameworks that are a little more accepting of innovation and change.”

Therefore, Kwon assured that Terraform is “happy” to educate regulators about cryptocurrencies.