Crypto: SEC conducting investigation of firm behind TerraUSD Stablecoin

Yahoo Finance crypto reporter Jennifer Schonberger joins the Live show to detail the SEC probe into Terraform Labs over the stablecoin crash involving Luna and the Terra ecosystem, as well as how eager companies are pivoting to crypto and NFT investments ahead of regulation.

Video transcript

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- The Stablecoin market has been rocked in recent weeks. Perhaps none more notably than Terraform Labs, the crypto firm behind Terra USD. And of course, Luna. According to a new report from Bloomberg, the SEC has opened an investigation to determine whether the company violated laws while marketing the coins to the public. Yahoo Finance's Jan Schonberger, with more on this. Hi there, Jen. What are we learning?

JENNIFER SCHONBERGER: Good afternoon, Dave. That's right. The Securities Exchange Commission, reportedly investigating the firm behind Stablecoin TerraUSD, and whether it violated investor protection rules surrounding securities and investment products when it crashed.

The Stablecoin was supposed to maintain a peg of 1 to 1 to the US dollar, through an algorithm, and trading and sister token called Luna. But that peg was broken May 7, sending shockwaves through crypto markets. The SEC did not immediately respond to Yahoo Finance for comment.

But Binance co-founder Yi He told me in an interview that the crypto exchange felt they were in a black box when the debacle was occurring. She told me that in talking with Terraform Labs, the Terra Luna team didn't know what to do. She says Binance strongly pushed them to stop minting new tokens amid the selling pressure.

And when they didn't, Binance stopped trading on the pair. Now the SEC's reported investigation into the Terra Luna crash comes as the agency is investigating another crypto product from Terraform and its founder, Do Kwan. That product tracks digital asset prices for US stock prices. And they are looking at whether that also violated federal security laws. Guys?

SEANA SMITH: Jennifer, any idea how this is affecting corporate America's interest in crypto? Are they staying on the sidelines until we get some regulation? Or are they still seeing opportunities?

JENNIFER SCHONBERGER: So as far as regulation is concerned, Seana. Companies are not waiting on Washington and New regulations to forge ahead. They are already looking at ways crypto can improve efficiencies within their business, within the current confines of US laws.

Executives that I spoke with at Deloitte & Touche told me that the companies they advise are asking how to incorporate crypto into their businesses while still complying with regulations. They said they cannot wait to move forward, because customers are demanding it now. Specifically, the principles at Deloitte tell me that the companies they advise are looking at NFTs, and whether they can use them for smart contracts, as well as looking at them as bundles of rights to protect IP, for things like songs.

Meanwhile, financial services institutions are looking at blockchain technology to settle trades faster and get themselves ready to offer crypto, when regulations are actually enacted. Deloitte execs and their companies that they advise are closely watching President Biden's executive order on regulating crypto, and the agency's reports that are due out along with that this fall. As well, they're paying attention to the newly-introduced legislation by senators Kirsten Gillibrand and Cynthia Lummis, that would wholeheartedly regulate the crypto space. Seana?

SEANA SMITH: All right, Jennifer Schonberger. Thanks so much for that.