Understanding the Paradigm Briefing Against SEC’s Lawsuit on Terra and Do Kwon

On April 25th, Rodrigo, the legal director of Paradigm, said on Twitter: “Paradigm submitted a amicus curiae briefing in the US SEC’s lawsuit against Terra and Do Kwon. Paradigm is not an investor in Terra, and the briefing we submitted does not support any party’s motion. Our only interest is to counter the SEC’s attempt to continue to expand its jurisdiction over cryptocurrencies.” Rodrigo mentioned: Through enforcement actions against Terra, the SEC attempts to advance an infinite theory that includes stable currency within its jurisdiction, that is, if any instrument can be traded as a so-called “crypto asset security,” then the instrument itself will become a “crypto asset security. Our briefing focuses on responding to the SEC’s new theory that algorithmic stable currency UST is a security. The SEC’s theory of UST is a supplement to the core claims in litigation. Nevertheless, we believe it is crucial that Judge Rakoff, who is responsible for this case, avoid unintentionally supporting this unsupported theory, and that the US Securities and Exchange Commission can seek to widely apply it to other stable currencies

Paradigm: In order to avoid SEC defining stable currency as securities, amicus curiae briefing has been submitted in Terra case

The legal battle between the United States Securities and Exchange Commission (SEC) and Terra and Do Kwon has received a new development. On April 25th, Rodrigo, the legal director of Paradigm, announced on Twitter that the company submitted an amicus curiae brief in the SEC’s lawsuit against Terra and Do Kwon. In this article, we will explore the details of this announcement and the significance of Paradigm’s briefing to the ongoing litigation.

Overview of the SEC Lawsuit Against Terra and Do Kwon

Before we dive into the specifics of Paradigm’s briefing, let us first understand the lawsuit that triggered it. The SEC filed a lawsuit against Terra and Do Kwon in December 2020, alleging that the companies conducted an unregistered initial coin offering (ICO) that raised $25.5 million from United States investors. The SEC claims that Terra’s stablecoin, called UST, is a security under the federal securities laws, and therefore, Terra should have registered it with the Commission before offering it to investors.
Terra and Do Kwon deny the SEC’s allegations and argue that UST is not a security but a stable currency that functions as a payment method. They also claim that the SEC’s case relies on a flawed legal theory that could have far-reaching consequences for the entire cryptocurrency industry. This is where Paradigm’s brief comes into play.

Paradigm’s Amicus Curiae Briefing

In legal terms, an amicus curiae (or “friend of the court”) brief is a document submitted by a person or entity who is not a party to a lawsuit but has an interest in its outcome. The purpose of such a brief is to provide the court with additional information and arguments that may be relevant to the case. Paradigm, a cryptocurrency investment firm, submitted an amicus curiae brief in the SEC’s lawsuit against Terra and Do Kwon. In the brief, Paradigm does not take a position on either side of the case. Instead, it focuses on a broader issue that may affect the entire cryptocurrency industry: the SEC’s attempt to expand its jurisdiction over cryptocurrencies.

The SEC’s Attempt to Expand Jurisdiction Over Cryptocurrencies

According to Rodrigo, the legal director of Paradigm, the SEC’s enforcement actions against Terra are part of a larger strategy to establish an “infinite theory” of jurisdiction over cryptocurrencies. This theory posits that any instrument that can be traded as a “crypto asset security” falls under the SEC’s jurisdiction, regardless of its underlying nature or purpose. This could potentially include stable currencies like UST, which are not designed to function as investments but as payment methods. The SEC’s theory of UST as a security is a supplemental claim in the litigation, but it has broader implications for other stable currencies as well.

Paradigm’s Response to the SEC’s Theory

In its brief, Paradigm argues that the SEC’s theory of UST as a security is unsupported and could have negative consequences for the entire cryptocurrency industry. The brief notes that stable currencies like UST have unique features and use cases that distinguish them from other securities. For example, stable currencies are designed to maintain a stable value relative to a fiat currency like the US dollar, which makes them attractive as payment methods and hedges against volatility. Unlike traditional securities, stable currencies do not promise profits or dividends to investors. Therefore, regulating them as securities would be inappropriate and could stifle innovation in the cryptocurrency industry.

Conclusion

While Paradigm’s briefing is not a direct response to the SEC’s case against Terra and Do Kwon, it is a significant development in the ongoing legal battle over the regulation of cryptocurrencies. The crypto industry is closely watching this case and others like it, as they could have far-reaching implications for the future of digital assets. As the SEC continues to grapple with the challenges of regulating this rapidly evolving industry, it is essential for all stakeholders to engage in informed discussion and debate to promote responsible innovation and protect investors.

FAQs

1. What is an amicus curiae briefing, and why did Paradigm submit one in the SEC’s lawsuit against Terra?
An amicus curiae brief is a document submitted by a person or entity who is not a party to a lawsuit but has an interest in its outcome. In the case of Paradigm, a cryptocurrency investment firm, it submitted a brief to provide the court with additional information and arguments that may be relevant to the SEC’s lawsuit against Terra and Do Kwon.
2. Why does the SEC consider UST, Terra’s stablecoin, as a security?
The SEC claims that UST is a security under the federal securities laws because it was offered to United States investors as an investment opportunity without proper registration, disclosure, and compliance with securities laws.
3. What are the implications of the SEC’s attempt to expand jurisdiction over cryptocurrencies?
The SEC’s attempt to establish an “infinite theory” of jurisdiction over cryptocurrencies could have far-reaching consequences for the entire cryptocurrency industry. It could potentially regulate stable currencies and other crypto assets as securities, even if they are not designed to function as investments but as payment methods. This could limit innovation in the industry and create uncertainty for investors.