Tai Mo Shan Reaches $123M Settlement with SEC

Tai Mo Shan, a subsidiary of Jump Crypto, has agreed to pay $123 million to settle with the SEC. The case centers around misleading investors about the stability of the TerraUSD (UST) algorithmic stablecoin before its collapse. 

The Collapse of TerraUSD

TerraUSD’s collapse in May 2022 shocked the crypto world. UST, once the third-largest stablecoin, lost its dollar peg. The crisis began when a whale dumped $285 million in UST on May 8. This sent the coin below its $1 value, trading at $0.98. 

By May 10, the value crashed to $0.67. Panic set in as traders were forced to liquidate their positions, and the market scrambled to adjust.

UST’s collapse revealed a massive flaw in its design. 

The coin relied on LUNA collateral to maintain its peg, but the value of UST grew far beyond what LUNA could back. With reserves insufficient to cover the coin’s losses, the value of UST plummeted.

SEC Investigation and Settlement

The fallout was severe. The crash forced regulators to take a closer look at algorithmic stablecoins. The Lummis-Gillibrand Stablecoin Act of 2024 was introduced to prohibit these coins in the U.S., aiming to prevent a similar disaster.

The SEC’s investigation into Terraform Labs and founder Do Kwon focused on potential fraud and market manipulation. SEC Chair Gary Gensler emphasized the damage caused by the collapse. 

He warned that market participants must comply with securities laws and protect the public from deceptive practices. The $123 million fine marks a significant consequence for the role Tai Mo Shan played in the TerraUSD collapse.