The U.S. Securities and Exchange Commission (SEC) has imposed millions of dollars in fines on a subsidiary of Jump Trading, accusing the firm of involvement in the Terra collapse. Here are the details:
Tai Mo Shan Fined by SEC Over Terra Support
The U.S. Securities and Exchange Commission (SEC) has announced that Jump Trading’s cryptocurrency subsidiary, Tai Mo Shan, should be fined $123 million for its role in the 2021 TerraUSD depeg incident. The SEC claims that Tai Mo Shan spent $20 million to stabilize TerraUSD during the event.
In May 2021, TerraUSD (UST) lost its peg due to a malfunction in its algorithmic stabilization system, but the token regained its value shortly after. The SEC asserts that Tai Mo Shan made a $20 million acquisition to stabilize the asset, which misled investors and created a false sense of security.
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The SEC will apply the $123 million fine to Tai Mo Shan, including $86 million for the restitution of profits and an additional $36 million as a civil penalty. The fine is related to Tai Mo Shan’s intervention to stabilize TerraUSD. The SEC suggests that Tai Mo Shan made a profit of $1.28 billion in the process.
The SEC states that Tai Mo Shan’s actions misled investors about the stabilization mechanism of TerraUSD, and the way TerraUSD was promoted as a “black swan” event overlooked this intervention. The SEC also noted that Terraform Labs has already paid a $4 billion fine.
What Happened in the Terra Collapse?
Terra, established in 2018, was a platform designed to create a decentralized finance (DeFi) network using blockchain technology. TerraUSD (UST) and its sister token LUNA were traded within the network. UST aimed to maintain a stable value equal to 1 U.S. Dollar, while LUNA helped balance the value of UST. UST’s design as an algorithmic stablecoin aimed to stabilize the system by allowing UST to be bought and sold for LUNA when its value decreased.
However, in May 2022, Terra and LUNA experienced a major crisis. UST dropped below $1, severely impacting the value of LUNA. This led to Terra’s collapse and wiped out approximately $400 billion from the markets. The Terra ecosystem experienced a bank run as users quickly sold off their tokens. This revealed that Terra’s algorithms failed to maintain the expected balance, causing LUNA’s value to plummet from over $120 to nearly zero, resulting in massive market losses.
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Following the Terra collapse, Terraform Labs launched Terra 2.0 as part of its restructuring efforts. However, this rebirth remains controversial. Former CEO Do Kwon continues to advocate for decentralization and blockchain project potential, offering use cases such as staking and digital art transactions on the new platform. Nevertheless, the collapse of Terra led to major investor losses and a loss of confidence in the market. As reported by Kriptokoin.com, the Terra team is still proposing measures to stabilize the token’s balance.
