In May 2021, TerraUSD (UST) — an algorithmic stablecoin pegged to $1 — experienced a “depeg” event, causing its price to fall below $1. During this critical period:
- Tai Mo Shan purchased $20 million worth of UST, creating the illusion that Terra’s stabilization algorithm was still functioning.
- This intervention misled investors into believing UST’s value was secure, masking the stablecoin’s underlying flaws.
In return, Tai Mo Shan received early access to Luna tokens, which were later sold at a profit.
The SEC’s findings concluded:
- The intervention gave a false impression of stability and prevented the market from recognizing the algorithmic mechanism’s failure.
- Tai Mo Shan’s actions generated $86 million in profits, included in the $123 million settlement (disgorgement + $36 million civil penalty).
“Investors deserve transparency, especially in volatile markets like cryptocurrency,” the SEC stated, citing this case as an example of why stricter regulations are needed.