cryptojournalist
Tai Mo Shan, a subsidiary of Jump Crypto, has agreed to pay $123 million to the U.S. Securities and Exchange Commission (SEC) to settle allegations of misleading investors about the stability of TerraUSD (UST), an algorithmic stablecoin that collapsed in 2022.
SEC Settlement and Allegations
The SEC accused Tai Mo Shan of misleading practices, including a 2021 agreement with Terraform Labs to buy Terra LUNA at a steep discount. Tai Mo Shan also reportedly purchased $20 million worth of UST to help maintain its 1:1 peg with the U.S. dollar. SEC Chair Gary Gensler criticized such practices, stating that the collapse of UST caused widespread financial losses and underscored the need for crypto firms to comply with securities laws.
TerraUSD Collapse and Its Impact
TerraUSD was an algorithmic stablecoin designed to maintain its dollar peg using software and digital asset collateral. However, it collapsed in May 2022, sending shockwaves through the crypto industry.
The trouble began on May 8, 2022, when a large investor sold $285 million in UST, causing its value to drop below $1. By May 10, UST had plummeted to $0.67, triggering widespread panic among investors and significant liquidations. The market capitalization of UST soon exceeded the value of its collateral, leading to a complete loss of confidence and a total collapse.
The fallout led to investigations into Terraform Labs and its founder, Do Kwon, resulting in a $4.4 billion settlement and increased regulatory scrutiny, including the introduction of the Lummis-Gillibrand Stablecoin Act in 2024, which prohibits algorithmic stablecoins.
