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SEC’s Lawsuit Against Terraform Labs Could Set a Precedent to Ban Stable Currencies, Says Delphi Labs General Counsel

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It is reported that Gabriel Shapiro, the general counsel of Delphi Labs, said on Twitter that the lawsuit of the United States Securities and Exchange Commissi…

SECs Lawsuit Against Terraform Labs Could Set a Precedent to Ban Stable Currencies, Says Delphi Labs General Counsel

It is reported that Gabriel Shapiro, the general counsel of Delphi Labs, said on Twitter that the lawsuit of the United States Securities and Exchange Commission (SEC) against Terraform Labs and its co-founder Do Kwon could be regarded as the “road map” of the SEC to ban other stable currencies. Shapiro said that the SEC’s argument in the lawsuit was “more thorough than usual”. The SEC’s lawsuit has four firsts: 1. It claims that the stable currency (UST) is a security; 2. It is claimed that the synthetic stock (mAsset) is a (security) swap; 3. Claim that “Encapsulated Token” (wLUNA) is a kind of security. 4. The Howey test is not used for tokens, but the argument of “enumerating securities” is used to support its view that wLUNA is the “receipt” of securities and therefore the securities.

Lawyer: The SEC’s lawsuit against Terra can be seen as the “road map” for the SEC to ban other stable currencies

Interpretation of the news:


The general counsel of Delphi Labs, Gabriel Shapiro, has stated on Twitter that the recent lawsuit filed by the United States Securities and Exchange Commission (SEC) against Terraform Labs and its co-founder Do Kwon could be viewed as a “road map” to ban other stable currencies. Shapiro argues that the SEC’s argument presented in the lawsuit is “more thorough than usual”, which suggests that it is anticipating challenges to its case.

The SEC’s lawsuit is notable as it lays out four firsts. Firstly, it claims that the stable currencies, notably the UST, are a security rather than a commodity or a currency. Secondly, it argues that the synthetic stock, mAsset, is a security swap, indicating that the SEC is paying closer attention to the use of derivatives. Thirdly, the lawsuit claims that the “Encapsulated Token”, wLUNA, is also a security. And fourthly, the lawsuit does not reference the Howey test, which sets the criteria for determining whether a financial instrument is a security, but instead relies on “enumerating securities” to support its argument that wLUNA is a “receipt” of securities and hence a security itself.

Shapiro’s message implies that the SEC is using the lawsuit against Terraform Labs as a precedent to establish a regulatory framework for stable currencies. A significant development is that the SEC is not referring to the Howey test but is using its interpretation of the definition of a security, which could affect many fintech companies’ activities.

The SEC has been taking a more assertive stance in regulating the cryptocurrency market, and the Terraform Labs lawsuit confirms the SEC’s position that all tokens fall under the category of the securities laws. The possible ramifications of this lawsuit could trigger a wave of new SEC filings from other projects that issue stable currencies. Stablecoins have become increasingly popular as they offer a flexible way to hold value within a cryptocurrency-based system.

In conclusion, the SEC’s lawsuit against Terraform Labs is critical, given the potential regulatory changes that could occur as a result of the case. The new framework proposed by the SEC could restrict innovation and development in the cryptocurrency and blockchain sectors. In the short term, Delphi Labs suggests that investors could sell off their stablecoins until the regulatory outlook becomes clearer.

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