The Legal and Regulatory Fallout From Terra’s Collapse: Who Will Pay?

Olta Andoni, deputy general counsel at Ava Labs, and Ari Redbord, head of legal and government affairs at TRM Labs, discuss the Terra stablecoin meltdown, implications for impending international regulations, and the history of stablecoin regulation internationally.

Topics covered include:

• What the most important legal issues are for the Terra meltdown
• How the Terra implosion will trigger more regulation of the space
• How regulators seemed to think stablecoins should be regulated even before Terra
• How their approach differs between dollar-backed stablecoins vs. algorithmic vs. crypto collateral-backed coins
• How European regulators want stablecoin issuers to be treated like banks
• What the Lummis-Gillibrand bill would mean for US stablecoin regulation
• Whether Terra’s demise will mean that regulators won’t tolerate experimentation with algorithmic stablecoins 
• Why regulators will be skittish about stablecoins in response to Terra’s  meltdown
• Why Olta and Ari were impressed by the NY Department of Financial Services guidance on stablecoins
• What the establishment of SEC jurisdiction over Terraform Labs based on the Mirror investigation from last fall means for any enforcement action by the SEC over Terra 
• Whether Do Kwon and/or Terraform could face criminal charges in multiple jurisdictions
• Why international regulatory consistency is important in the crypto space
• Whether civil and class-action lawsuits against Terraform could be expected
• How Terra 2.0 could open TFL up to further action from regulators and law enforcement
• Why more education is needed to overcome anxiety about DeFi regulations
• How hack nondisclosures could be subject to government investigation

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Episode Links

Olta

• Avalanche
  • https://www.avax.network/
• Ava Labs
  • https://www.avalabs.org/
• LinkedIn
  • https://www.linkedin.com/in/oltaandoni/
• Twitter
  • https://twitter.com/AndoniOlta

Ari

• TRM Labs Website: 
  • https://www.trmlabs.com/
• TRM Labs Twitter
  • https://twitter.com/trmlabs?s=20&t=m24Ir0OerqPgEejlhL-bdQ
• TRM Talks
  • https://www.trmlabs.com/category/trm-talks
• LinkedIn
  • https://www.linkedin.com/in/ari-redbord-4054381b4/
• Twitter
  • https://twitter.com/ARedbord?s=20&t=m24Ir0OerqPgEejlhL-bdQ

Lummis-Gillibrand Bill

• Bill Introduction:

• Legal Memo from DLx Law: https://dlxlaw.com/wp-content/uploads/2022/06/DLX_FSV-summary_RFIA_060722.pdf
• Lummis-Gillibrand Section by Section Overview (summary by bill authors): https://www.gillibrand.senate.gov/imo/media/doc/Lummis-Gillibrand%20Section-by-Section%20%5bFinal%5d.pdf
• Responsible Financial Innovation Act (full text): https://www.gillibrand.senate.gov/imo/media/doc/Lummis-Gillibrand%20Responsible%20Financial%20Innovation%20Act%20%5bFinal%5d.pdf
• Blog post intro (by Senator Kirsten Gillibrand): https://gillibrandny.medium.com/the-responsible-financial-innovation-act-218a764abd6c

FINMA

• FINMA: https://www.finma.ch/en/

• FINMA on Stablecoins: https://www.finma.ch/en/news/2019/09/20190911-mm-stable-coins/

• FINMA Publishes Stablecoin Guidance: https://www.sif.admin.ch/sif/en/home/finanzmarktpolitik/digitalisation-financial-sector/stablecoins.html

NY DFS

• Guidance on Stablecoin Issuance: https://www.dfs.ny.gov/industry_guidance/industry_letters/il20220608_issuance_stablecoins

• Press Release: https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202206081

• CNBC Coverage:  https://www.cnbc.com/2022/06/08/new-yorks-financial-watchdog-issues-stablecoin-guidance-calls-for-reserve-requirements.html

SEC Actions Against Terra

• SEC Investigating UST Stablecoin Blowup in Fresh Threat to Terra:

• Terraform Labs Loses US Appeal over SEC Subpoena:

Allegations against Do Kwon

• Seoul Police Probe Allegation of Embezzlement by Terraform Staff: https://www.bloomberg.com/news/articles/2022-06-09/seoul-police-probe-allegation-of-embezzlement-by-terraform-staff
• South Korea Launches Investigation into Company Behind Luna Crypto Crash:

MICA

• Deloitte on MiCA Adoption: ​​https://www2.deloitte.com/lu/en/pages/financial-services/articles/digital-finance-european-parliament-adopts-mica-regulation-innovation-friendly-crypto-regulation.html
• Europe’s Landmark Crypto Bill Passes Parliamentary Committee with Wide Majority: https://www.theblockcrypto.com/linked/137720/europes-landmark-crypto-bill-passes-parliamentary-committee-with-wide-majority

Facebook Libra

• Facebook Libra: The Inside Story of How the Company’s Cryptocurrency Dream Died:

• Mark Zuckerberg’s Stablecoin Ambitions Unravel with Diem Sale Talks: