U.S Judge Reviews Terra’s Digital Assets Status as Securities

• U.S. judge deliberates classification of collapsed Terraform Labs’ digital assets as securities in SEC lawsuit.
• Do Kwon and Terraform Labs seek dismissal of SEC case, arguing digital assets don’t meet securities criteria.
• Judge questions if Terraform Labs’ Anchor protocol should be considered a security.

As per the latest reports, a U.S. judge deliberated over the classification of digital assets of the collapsed Terraform Labs as securities. The new revelation is at the heart of the U.S. Securities and Exchange Commission’s (SEC) lawsuit against Terraform Labs and its founder, Do Kwon.

The reports reveal that Do Kwon and Terraform Labs requested the dismissal of the U.S. SEC’s case, which accuses them of failing to “provide the public with full, fair, and truthful disclosure as required for a host of crypto asset securities, most notably for LUNA and Terra USD.” Their plea was made to U.S. District Judge Jed Rakoff in Manhattan.

Judge Rakoff expressed doubts during the hearing, regarding the classification of Terraform Labs’ offering of the Anchor protocol. He questioned whether this offering, which guaranteed returns of up to 20% on TerraUSD deposits, should be deemed as a security.

He stated It is something you created, that only people who had taken this first step could take advantage of. I don’t see why that’s not a securities contract at that point.

Terraform Labs and Kwon are contending that the case should be dismissed on the grounds that their digital assets do not meet the criteria for securities, and they argue that the SEC does not have jurisdiction over the industry. Judge Rakoff announced that he will deliver his ruling on the motion to dismiss the case by July 14, 2023.

Last year, Terra’s stablecoin Terra USD (UST) experienced a depeg from the U.S., resulting in volatility for the stablecoin. A disastrous series of events unfolded on May 7, causing its value to plummet to nearly zero within a matter of days. This incident also triggered a collapse in the value of the LUNA token. Currently, Terraform Labs founder Do Kwon is awaiting imprisonment in both the US and South Korea. However, he is currently out on bail in Montenegro, having secured approval from the Montenegro Court for his bail proposal.