30s Summary

Jump Crypto subsidiary, Tai Mo Shan, was penalized $123m by the SEC for misleading investors about TerraUSD (UST) digital coin’s stability. Tai Mo Shan purchased cheaper Terra Luna from Terraform Labs and used it to stabilize UST’s value to the US dollar. However, a sudden selling spree in May 2022 led to UST’s market value dropping, causing panic among investors and resulting in an SEC investigation into Terraform Labs and a $4.4 billion penalty. The incident also influenced regulations like the Lummis-Gillibrand Stablecoin Act of 2024, disapproving algorithm-based stablecoins.

Full Article

Jump Crypto’s subsidiary, Tai Mo Shan, had to pay a whopping $123 million penalty to the U.S. Securities and Exchange Commission (SEC) this past December. The reason? They hoodwinked investors about the sturdiness of the TerraUSD (UST) digital coin, which went belly-up.

The SEC has revealed that Tai Mo Shan managed to buy Terra LUNA at a knocked-down price from Terraform back in 2021. Subsequently, it bought $20 million worth of UST to stabilize the coin’s equal value to the U.S. dollar. Gary Gensler, the guy who chairs the SEC, elaborated on the UST crash. He said that this catastrophe rattled crypto markets and affected tons of people’s savings. He urged those involved in crypto to follow securities laws, if applicable, and to steer clear of lying to the public.

UST’s crash in May 2022 sent shockwaves through the crypto world. And that’s not all – it had a big influence on rules surrounding stable digital coins like the Lummis-Gillibrand Stablecoin Act of 2024, which gives the thumbs down to algorithm-based stablecoins.

The UST crash stemmed from its set-up. This digital coin tried to match its value to the U.S. dollar using software and digital asset collateral. But in May 2022, UST completely tanked. The digital coin, which was third in terms of market size, started spiraling on May 8, 2022, when a big player dumped a massive $285 million in UST. This caused UST’s value to drop from a one-to-one with the dollar to $0.98.

On May 10, 2022, UST was valued at just $0.67. This disastrous move triggered a domino effect among traders who were heavily invested, inciting more fear and suspicion among investors.

As UST was in free-fall, the market size of the stablecoin was way more than the LUNA reserves that were supposed to back up UST. This was a clear signal that the digital coin didn’t have enough reserves to prop it up, leading to UST’s price completely collapsing as investors unloaded their shares in panic.

This disaster led to an official investigation into Terraform Labs and the founder Do Kwon. It ended up in a staggering penalty of $4.4 billion.