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Terraform Labs seeks summary judgment to dismiss SEC allegations

Policy & Regulation·November 01, 2023, 2:14 AM

Lawyers representing bankrupt Singaporean crypto firm Terraform Labs and its co-founder, Do Kwon, have requested a summary judgment from a New York judge in their legal battle against the United States’ Securities and Exchange Commission (SEC).

If granted, such a dismissal could potentially spare them from a full-blown trial. In their motion, the legal team argued vehemently that they are innocent of the SEC’s allegations, maintaining that the regulator has failed to provide any compelling evidence of wrongdoing.

Photo by Bermix Studio on Unsplash

 

Defining a security

The motion, which was filed last Friday in the U.S. District Court for the Southern District of New York, asserts that the implicated cryptocurrencies of Terra Classic (LUNC), TerraClassicUSD (USTC) and Mirror Protocol (MIR), together with its Mirrored assets (mAssets), are not securities as claimed by the SEC in its complaint.

The heart of the matter revolves around the SEC’s assertion that Terraform Labs offered or sold securities, a claim vehemently denied by the defendants. The SEC initially brought the case in February, referencing algorithmic stablecoin TerraUSD, which famously collapsed in May 2022.

 

Lawyers claim case is unsubstantiated

Both Kwon and Terraform Labs’ attorneys argued that despite over two years of investigation, more than 20 depositions, and the exchange of a staggering two million pages of documents, the SEC’s case remains unsubstantiated.

The SEC’s original complaint in February accused Kwon and Terraform of raising substantial sums from investors by offering and selling an inter-connected suite of crypto asset securities, many of which were unregistered transactions. SEC Chair Gary Gensler added that Terraform and Kwon had failed to provide investors with full disclosures, notably concerning LUNA and TerraUSD.

A key element of the dispute centers on the SEC’s allegation that Kwon and Terraform moved millions of dollars into Swiss bank accounts for personal gain. According to the agency’s complaint, the company and Kwon transferred 10,000 bitcoins to a financial institution based in Switzerland. The legal team representing Kwon and Terraform vehemently denies this allegation, characterizing it as baseless and unfounded.

 

Flawed stablecoin design

Algorithmic stablecoins, such as TerraUSD, operate using market incentives via algorithms to maintain a stable price. Terra was tied to Luna, a governance token, in an attempt to stabilize prices. Unfortunately, the collapse of TerraUSD in 2022 destroyed in excess of $40 billion in value held by investors. It also had a domino effect, leading to a series of other crypto platform collapses later in 2022.

Judge Jed Rakoff, presiding over the case in the Southern District of New York, had previously denied an attempt by Terraform Labs and Kwon to have the case dismissed. This new motion for summary judgment represents their latest effort to put an end to the legal proceedings.

In a separate but related action, lawyers representing Terraform Labs Co-Founder Daniel Shin asserted that Shin played no role in the collapse of TerraUSD. In a Seoul district court, they emphasized that Shin had nothing to do with the collapse despite being indicted in South Korea in April on various charges, including fraud.

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Policy & Regulation·

Jan 06, 2024

India’s CBDC reaches 1 million daily transactions milestone

India’s digital currency transactions have surged, surpassing 1 million daily transactions in December, meeting the Reserve Bank of India’s (RBI) ambitious target set for the end of 2023.Photo by Julian Yu on UnsplashCBDC-based employee paymentsReuters cited three sources familiar with the matter who have revealed that Indian banks played a crucial role in achieving this milestone by disbursing certain employee benefits through the central bank’s digital currency (CBDC), known as the e-rupee. As Indian crypto influencer and YouTuber Sumit Kapoor put it, the transaction level increase “happened because people working in regular banks were encouraged to use digital rupees instead of the normal money for their deposits and benefits.” RPI letter confirms increaseA letter seen by CoinDesk sent by the Governor of the Reserve Bank of India (RBI), Shaktikanta Das, to RBI staff on Dec. 29 confirmed the increased CBDC use, stating that it “exceeded the milestone of 1 million transactions in a day on Dec. 27, 2023.” The e-rupee, developed as a digital counterpart to physical cash, utilizes distributed ledger technology. The RBI initiated the e-rupee pilot in December 2022, initially recording an average of 25,000 daily transactions by the end of October. Despite its integration with the Unified Payments Interface (UPI), a popular framework for mobile app-based peer-to-peer money transfers, the transaction volume saw a substantial increase last month. Union Bank paymentsAccording to India’s Economic Times, the Union Bank of India is working towards transferring claims related to a number of employee benefits to CBDC wallets rather than the accounts of those salaried employees. Union Bank stated: “With an aim to promote CBDC wallet transactions, banks have been advised to encourage all staff members to transact using the digital currency and ensure 100% staff registration on digital rupee app.” Other banks have been playing their part in the current transaction level surge. This has included major private and state-run lenders such as HDFC Bank, Kotak Mahindra Bank, Axis Bank, Canara Bank and IDFC First Bank. These institutions disbursed employee benefits directly into CBDC wallets rather than traditional salary accounts, demonstrating a significant shift in adoption patterns. The RBI anticipates that non-financial firms will follow suit, contributing to a further boost in transaction volumes. The user base for the e-rupee has also witnessed steady growth, reaching approximately 4 million users, up from 3 million in December, according to an executive familiar with the pilot. Globally, several countries, including China, France and Ghana, are in the pilot stages of their central bank digital currency (CBDC) projects. Nigeria has rolled out its digital currency, although success has been limited despite offering incentives such as discounts on auto-rickshaw rides. To incentivize e-rupee transactions, Indian banks are offering rewards, aligning with the RBI’s push to enhance transaction volumes. Sharat Chandra, co-founder of the India Blockchain Forum, commended the move to compensate employees using CBDC and suggested expanding adoption incentives to other areas, such as toll tax collections, to further encourage widespread usage. The positive momentum in India’s digital currency landscape reflects a growing trend toward embracing innovative financial technologies. 

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Web3 & Enterprise·

Oct 05, 2023

Former SoftBank Executive Launches Stablecoin in Abu Dhabi

Former SoftBank Executive Launches Stablecoin in Abu DhabiAkshay Naheta, a former executive from SoftBank, known for his involvement in some of the firm’s most significant deals, is embarking on a new venture in Abu Dhabi, focusing on stablecoins.Photo by Mathilde Cureau on UnsplashDRAM Trust partnershipThe 42-year-old financier has established Distributed Technologies Research (DTR) within Abu Dhabi’s international financial free zone. The firm has partnered with Hong Kong-based DRAM Trust, an entity with connections to a pool of high-net-worth individuals.Together, the firms aim to tap into the stablecoin market, which analysts at Bernstein predict will surge more than twenty-fold, reaching $2.8 trillion within the next five years. While the vast majority of stablecoins are pegged to the US dollar, DRAM coins will have backing from the United Arab Emirates dirham.Targeting high-inflation countriesThis peg to a relatively stable currency like the dirham offers greater security for individuals residing in high-inflation countries like Turkey, Egypt, and Pakistan. Additionally, it presents an alternative to the SWIFT system. While the dirham currently plays a minor role in the global economy, it has recently gained prominence as a petro-currency.“Our main focus is the unbanked and under-banked in these nations,” Naheta explained in an interview from Dubai. “If you want to diversify your risk and be in a currency that’s complimentary to the dollar, there’s a big percentage of money that can move into this,” he added.Naheta previously worked as a trader at Deutsche Bank. He had played a central role in some of SoftBank’s most notable deals during his tenure. Notably, he pitched the sale of chip designer Arm to semiconductor giant Nvidia. He also led a $4 billion investment in Nvidia in 2017, generating a $3 billion profit.Since his departure from SoftBank last year, Naheta has been actively involved in various fintech projects, with the UAE serving as his base of operations.Growing stablecoin circulationStablecoins have been in existence for nearly a decade. However, their primary use has been for trading purposes to facilitate the movement of digital assets between exchanges, and their adoption in consumer payments has been limited. Currently, there are approximately $124 billion worth of stablecoins in circulation, with Tether’s USDT being the largest, followed by the Circle-issued USDC.Supporters of stablecoins view them as a superior means of achieving cost-effective and instant money transfers and payments. Nevertheless, they have encountered resistance from central banks worldwide, which are actively developing their own central bank digital currencies (CBDCs).DRAM coins will be accessible on decentralized automated market makers, including Uniswap, Sushiswap, and Pancakeswap. Additionally, the team plans to collaborate with centralized exchanges in the near future, as revealed by Naheta.UAE ‘the new Switzerland’The former SoftBank executive anticipates significant demand for DRAM coins in the UAE, where a sizable expatriate population resides. Furthermore, the country is situated close to several high-inflation nations in Africa, the Middle East, and Asia.“I’m extremely bullish on the UAE,” Naheta stated. “It’s the new Switzerland — geopolitically neutral, a great transportation hub and a top tourism destination.”

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Policy & Regulation·

Aug 21, 2023

Korean Prosecutors Allocate $734K Budget for Crypto Crime Investigations

Korean Prosecutors Allocate $734K Budget for Crypto Crime InvestigationsThe South Korean Supreme Prosecutors’ Office has earmarked a budget of up to KRW 986 million (approximately $734,000) this year for investigations pertaining to virtual assets, according to data received by the local newspaper Law Times from the Ministry of Justice last Thursday. The significant size of the budget suggests that the prosecution is prioritizing efforts to combat the growing surge in virtual asset-related crimes.Photo by Tingey Injury Law Firm on UnsplashBudget divisionWithin this budget, KRW 778 million has been designated for the purchase of software licenses for virtual asset tracing and analysis equipment, while KRW 280 million has been allocated for an integrated strategic plan to establish a platform for analyzing and tracing unauthorized virtual asset transactions. The budget for this platform consists of preliminary planning costs. Related expenditures are expected to increase as the project is fully implemented.“It is true that our budgets are being concentrated on crimes related to virtual assets due to the fact that they have recently become a social issue,” said a prosecution official. “It may not be a lot compared to our overall budget, but assigning almost KRW 1 billion for one specific field of investigation is still a considerate amount.”Rising crypto crimesIn Korea, crimes associated with virtual assets have been increasing annually. This includes tax evasion, bribery, foreign exchange law violations, and money laundering, as well as cryptocurrency market issues including issuance, listing, and distribution. According to the Supreme Prosecutors’ Office, reported cases of suspicious virtual asset transactions received by the Korea Financial Intelligence Unit (KoFIU) surged from an average of 66 cases per month in 2021 to 900 cases in 2022, then 943 cases in 2023 — a fourteen-fold increase in just three years.Subsequently, the scale of the damages caused by cryptocurrency crimes has also seen a sharp rise. The total value of all reported damages skyrocketed from KRW 467.4 billion in 2017 to KRW 1.02 trillion last year, more than doubling in five years. The cumulative loss over this period exceeds KRW 5.3 trillion.Focused effortsThe prosecution has thus dispatched financial experts from organizations including KoFIU and Korea Exchange to create a joint virtual asset crime investigation unit under the Seoul Southern District Prosecutors’ Office dedicated to investigating cryptocurrency crimes.The prosecution’s Cybercrime Investigation Division has also begun developing a tracking system optimized for the Korean market to trace the flow of virtual assets. The foreign software that is currently being used for tracking comes with considerable expenses and limitations, particularly for tracking flows within the domestic market, where there are many transactions involving smaller, locally-issued cryptocurrencies called “kimchi coins.”“We are dedicating our manpower and technological development to virtual asset investigations,” said a high-ranking official from the prosecution. “We will also strive to secure the budget necessary for these efforts.”

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