Republican Senator Pat Toomey of Pennsylvania says that investors of Ethereum challenger Terra (LUNA) and its algorithmic stablecoin TerraUSD (UST) may have been defrauded after both of the crypto projects collapsed earlier this month.
In a new interview with Barron’s, Toomey says that the underlying mechanism designed to keep TerraUSD pegged to the dollar may have been misrepresented to traders as it ultimately ended up causing its downfall.
“The mechanism to ensure the value [of UST] was very dubious, but people wanted to speculate on that. They were being promised huge returns. Maybe you’ve got an argument for fraud. Maybe people were misrepresenting the nature of this animal.”
TerraUSD was designed to maintain its peg using algorithms instead of through vast reserves of cash and debt and was to mint new LUNA if it ever destabilized. However, after traders sold en masse, the mechanism ended up minting a staggering 6.5 trillion LUNA – tanking both the value of Terra and UST to all-time lows due to hyperinflation. Previously, only hundreds of millions of LUNA tokens were in circulation.
However, Toomey, who in April proposed lenient regulatory framework for non-algorithmic payment stablecoins such as Binance USD (BUSD), USD Coin (USDC) and Tether (USDT), says that investors shouldn’t be shielded from speculative risks by the government.
“People lose money on commodities and on speculation all the time. I don’t think it’s the job of the government to protect them from themselves.”
TerraUSD is changing hands at $0.093 at time of writing while LUNA is moving for $0.00018, a staggering 99.99% drop from its 30-day peak of $97.04.
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