Regulatory Aftermath of Terra's Collapse

This chapter examines the legal and regulatory responses following the failure of the algorithmic stablecoin TerraUSD and its counterpart, Luna, which resulted in significant investor losses. It discusses the evolving regulatory landscape for stablecoins, highlighting proposed measures from U.S. and EU lawmakers to ensure consumer protection and financial stability. The chapter emphasizes the lessons learned from past projects like Libra and calls for a structured approach to managing the systemic risks posed by stablecoins.

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Episode notes

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

Thank you to our sponsors!

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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:

https://www.gillibrand.senate.gov/news/press/release/-lummis-gillibrand-introduce-landmark-legislation-to-create-regulatory-framework-for-digital-assets

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