Jump Crypto Unit Settles with SEC for $123M

Jump Crypto’s subsidiary, Tai Mo Shan, resolves SEC charges with a $123 million settlement, addressing regulatory concerns.

Following a settlement with the SEC, Terraform Labs was forced to close its doors as a result of the Terra ecosystem’s collapse.

Tai Mo Shan, a subsidiary of Jump Crypto, agreed to pay the US Securities and Exchange Commission (SEC) $123 million on December 20 for deceiving investors about the safety of the TerraUSD (UST) algorithmic stablecoin prior to its collapse.

According to the SEC, Tai Mo Shan signed a deal with Terraform to buy Terra LUNA at a significant discount in 2021. Tai Mo Shan then acquired around $20 million in UST to keep the algorithmic stablecoin’s 1:1 peg to the US dollar. SEC Chair Gary Gensler stated the following concerning the collapse of UST.

“The impact resonated across the cryptocurrency markets, ultimately losing numerous investors their cash. Regardless of the labels, crypto market players should follow any securities regulations and avoid deceiving the public.

TerraUSD’s collapse in May 2022 shook the crypto world and influenced stablecoin regulation, including the Lummis-Gillibrand Stablecoin Act of 2024, which outlaws algorithmic stablecoins.

The TerraUSD collapse

TerraUSD, an algorithmic stablecoin tied to the US dollar through software and digital asset collateral, failed in May 2022. TerraUSD was then the third-largest stablecoin in terms of market value.

On May 8, 2022, a whale unloaded $285 million in UST, signaling the start of the algorithmic stablecoin’s decline. This resulted in UST losing its 1:1 dollar peg and trading at $0.98.

TerraUSD fell to $0.67 on May 10, 2022, triggering a wave of liquidations among long-leveraged traders and instilling additional dread, uncertainty, and doubt among investors.

During UST’s freefall, the market capitalization of the algorithmic stablecoin grew much higher than the underlying LUNA reserves that served as collateral for UST.

This indicated that the algorithmic stablecoin lacked adequate underlying reserves, resulting in a full collapse of the UST price as investors panicked and dumped their holdings.

The failure of UST prompted an official investigation of Terraform Labs and founder Do Kwon by US federal authorities, which resulted in charges and a $4.4 billion settlement.

Read more: Why is the Crypto Market Seeing a Major Dump Today?