Feb 18, 2023
SEC Accused of Wild Actions Over Terraform Labs, Do Kwon Charges
The United States Securities and Exchange Commission (SEC) recently charged Do Kwon and his company Terraform Labs with allegedly selling a “suite of crypto asset securities”, which has stirred up a variety of reactions from the crypto community. Mike Selig, a web3 lawyer, posted his thoughts on the issue on Twitter. He explained that the SEC has characterized the algorithmic stablecoin TerraUSD Classic (USTC) as a security because it could be exchanged for Terra (LUNA), now known as Luna Classic (LUNC), which is also a security according to the SEC. He argued that if this theory is accepted, “nearly anything can be a security.”
Mike Wawszczak, the general counsel for Alliance DAO, suggested that SEC Chairperson Gary Gensler is attempting to gain “complete discretion” in applying securities laws to any transactions. He pointed out that Gensler has requested $2.2 billion in FY 2023 for this purpose, which is a much higher budget than San Francisco’s last year. Justin Browder, a partner at the law firm Willkie Farr & Gallagher, questioned the SEC’s description of USTC’s use to generate returns on another protocol, saying it is similar to “depositing fiat in a bank.” He also questioned whether there is another non-security currency that does not behave like that and described the SEC’s actions as “wild.”
Dylan Daniel, a member of the Web3 community, noted that if everything becomes a security, the SEC will have to expand and scale itself, and he hopes Gensler has a solid plan. These comments echo the confusion experienced by the crypto community when the SEC decided to go after Paxos, claiming that the Binance USD (BUSD) stablecoin is a security. Many argued that users of the stablecoin do not purchase it and expect its price to go up.
The SEC’s actions have raised a lot of questions about the future of financials and crypto in the web3 space. Many are wondering if the SEC’s stance on NFTs, promotion, and marketing will affect the ability of companies to sell NFTs and the ability of NFT marketing agencies to promote them. For example, will Twitter NFT marketing be affected by the SEC’s stance? It remains to be seen how the SEC’s actions will play out, but it is clear that the implications are far-reaching.
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