Terra's UST stablecoin could become the subject of a U.S. Securities and Exchange Commission investigation.
An unnamed source told Bloomberg that the regulator's enforcement attorneys have been looking into whether the way Terraform Labs marketed UST, its algorithmic stablecoin, violated federal investor protection rules.
By definition, Terra's UST should have maintained its U.S. dollar peg and always been redeemable for $1. But unlike other stablecoins, UST relied on an algorithm, not a central issuer, to maintain its peg. When the algorithm appeared to longer be enough, Terraform Labs, through a separate entity called the Luna Foundation Guard (LFG), stepped in to provide backing.
The Luna Foundation Guard bought large amounts of Bitcoin and other cryptocurrencies, beginning in February, as reserve currencies for UST. So if a run took place on the stablecoin, and the price dropped below $1, LFG would use its Bitcoin reserves to buy back enough UST on the market to bring its price...
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