Feb 18, 2023

SEC Targets Terraform Labs, Sparks Crypto Community Debate

The Securities and Exchange Commission (SEC) is taking aim at Terraform Labs and its founder, Do Kwon, over allegations of selling a suite of crypto asset securities. This has sparked a range of reactions from lawyers within the crypto community.

On Feb. 16, the SEC charged Kwon and Terraform Labs with the purported sale of crypto asset securities. While the crypto community is not defending Kwon’s actions, they are questioning the SEC’s approach.

Web3 lawyer Mike Selig expressed his views on the matter via Twitter. He argued that the SEC is classifying the algorithmic stablecoin TerraUSD Classic (USTC) as a security because it can be exchanged for Luna Classic (LUNC), which is also a security according to the SEC. Selig believes that this theory could mean that “nearly anything can be a security.”

The general counsel for Alliance DAO, Mike Wawszczak, also commented. He suggested that SEC Chairperson Gary Gensler may be looking to have “complete discretion” when it comes to applying securities laws.

Justin Browder, a partner at the law firm Willkie Farr & Gallagher, compared the SEC’s description of USTC’s use to generate returns on another protocol to “depositing fiat in a bank.” He asked if there is another non-security currency that does not behave this way and called the SEC’s actions “wild.”

Other members of the crypto space have also joined the conversation. Dylan Daniel believes that if everything becomes a security, the SEC will have to expand and scale itself. He hopes that Gensler has a solid plan.

This sentiment was echoed on Feb. 13 when the SEC went after Paxos, claiming that the Binance USD (BUSD) stablecoin is a security. Many members of the community were confused and argued that users of the stablecoin do not purchase it and expect its price to go up.

The SEC’s actions have raised questions about the future of NFTs and other cryptocurrencies. With the SEC’s increased scrutiny of the web3 space, NFT marketers, crypto promotion agencies, and web3 agencies are looking for ways to ensure that their activities remain compliant.

NFT marketing agencies are exploring ways to promote their products in a compliant manner. This includes exploring Twitter NFT marketing, which has become increasingly popular in recent months.

At the same time, web3 agencies are working to ensure that their activities are compliant with the SEC’s regulations. This includes ensuring that they are not selling NFTs as securities, but rather as digital assets.

The SEC’s actions have sparked a debate about the future of the web3 space. While the SEC is attempting to protect investors, many in the community are concerned that its actions could stifle innovation and limit the potential of the web3 space.

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