A class-action lawsuit was launched against Binance.US today, alleging that the cryptocurrency exchange misled customers about the safety of Terra’s stablecoin UST and native token LUNA.
Binance is also accused of breaking federal law by selling UST and LUNA, which the plaintiffs contend are securities that should have been registered with the Securities and Exchange Commission, and by functioning as an unregistered securities exchange.
UST is an algorithmic stablecoin that relies only on an algorithmic link with Terra’s native token, LUNA, for stability, unlike other stablecoins backed by real-world assets. The system worked until last month, when UST’s unexpected de-pegging pulled LUNA down with it, wiping out thousands of investors, including the as-of-yet unreported number of plaintiffs in today’s lawsuit.
Should the value of the UST deviate from its peg to the US dollar, a system was built to always allow the exchange of 1 UST for 1 LUNA. Speculators were encouraged to close any value gap between the UST and the dollar using this setup.
Binance US is accused of not being devoted to its clients by failing to comply with federal and state securities laws when it listed terrausd. According to the lawsuit, UST was promoted as a “secure” asset, and Binance US is “intimately familiar with UST and LUNA” as “an early supporter of [Terraform Labs].”
“Binance US’s inability to comply with the securities laws, as well as its misleading advertising of UST, resulted in terrible results for Binance US’s clients in May 2022, when UST lost practically all of its value – a loss of approximately $18 billion,” according to the lawsuit. The lawsuit further states that Binance withdrew the fraudulent advertisements after the UST crash, but the company continues to sell Terra-based assets.
