Stablecoins can give you a false sense security. The uninitiated or uncaring may get the false impression that certain coins are pegged to the U.S. dollars (or an equivalent thereof in terms value and stability) and that you can convert your stablecoin into dollars easily and instantly. But they don’t do such things, The recent collapse is a clear exampleLUNA token, TerraUSD stablecoin, and LUNA token. Also made evident in September 2008 by collapse of Reserve Primary Fund money fund at the height of global financial crises.

Powers On…Marc Powers writes a monthly opinion column. After a brief stint at the SEC, he spent much of his forty-year career dealing with complicated securities-related cases in the United States. He is now an adjunct professor at Florida International University College of Law, where he teaches a course on Blockchain & the Law.

Let’s see if the UST/LUNA breaks the buck price crash.

1. UST/LUNA was not a new or unique event. This happened in 2008 with the Reserve Primary Fund. It was spectacular and took a lot of hand-wringing. The Reserve Primary Funds money markets were no different. Investors in Terraform Labs’ stablecoin products weren’t insured by government aid.
2. The United States government will probably conduct several investigations and/or hearings into this latest debacle. To protect investors, those opposed to crypto will be calling for regulation of the whole nascent cryptocurrency industry. But it’s important to keep in mind that the Reserve Primary Fund was not a mutual funds and is regulated by SEC. This did not stop the fund from being run over. There is no panacea for knee-jerk regulation.
3. There should be regulation and a regulator of stablecoins, and the issuers, if not by the SEC, CFTC or Treasury. It is important to recognize the importance of these coins in capital markets and for financial transactions in crypto-related ecosystems. Stablecoins can be used by investors to ensure that the coins are properly secured and have unambiguous redemption rights.
4. Terraform Labs, and its founder Do KwonHe will also face civil and criminal investigation and legal proceedings related to the UST/LUNA fall. Kwon is likely to be brought before both South Korean and American criminal prosecutors. It will likely be filed class actions. This will be a long and difficult process. In February 2022, the SEC launched investigations into Mirror Protocol, another Terraform Labs Project. A judge from the Southern District of New York was appointed in February 2022. HeldTerraform Labs had to agree with Kwon’s subpoenas. Both will be worse off now that UST/LUNA is in effect.
5. Coinbase (NASDAQ 🙂 included a risk disclosure in their filings, it was revealed just days after the UST/LUNA runs. It was noted by Coinbase (NASDAQ:) that customers of the central exchange could be considered as creditors unsecured in case it files for bankruptcy. This makes it front-and-center Last year’s writingsCoinbase and Gemini do not have an SEC registration as exchanges. They are licensed only under the New York BitLicense program. This is a huge deal. This means that customers accounts can not be insured by SIPC for cash and securities up to $500,000 and that no exchange is subject the SECs segregation laws for customer assets or funds.

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