In a Thursday night hearing, the U.S. Securities and Exchange Commission (SEC) and Terraform Labs debated whether TerraUSD (UST) is an investment contract. Douglas Henkin, an attorney with the Dentons law firm representing Terraform, argued that the SEC only wants one word to have any meaning. They want to delete the word ‘contract’.
The defense pushed the idea that UST was designed for practical uses, rather than as an investment, echoing similar arguments numerous other token issuers have made in arguing that their respective crypto assets are not securities. Ahead of the hearing, Terraform’s legal team filed documents, including a transcript from the hearing held Tuesday to discuss the SEC’s motion for a temporary restraining order against Binance.US.
The defense argued that even though some people may have staked UST in the Anchor protocol in the hopes of a return, the token itself should not be considered a security because of the possible other uses. Henkin said, By design…it’s pegged one-to-one to the dollar, it’s designed not to fluctuate. That’s for commerce…that’s a consumptive use.
The SEC’s Devon Staren argued that the analysis of whether something is an investment contract allows for possible consumptive uses. She said the SEC’s assertion that there were securities violations was based on the expectations by investors and the economic realities around the UST token.
Henkin likened UST to Bitcoin, saying that unlike other assets which are managed by a centralized party, UST is controlled by a decentralized group through the LUNA token. He said, It’s true that the original algorithm was coded by TFL, but then it was turned over to the community.
Staren said the SEC isn’t alleging the assets themselves are securities-based swaps, but the transactions they’re involved in are. She said, These crypto assets alone are not investment contracts. LUNA alone is just a piece of code.
Senior Judge Jed Rakoff of the U.S. District Court for the Southern District of New York said he would publish a ruling on the motion to dismiss on or before July 14.