Stablegains, a yield platform, is being sued for endorsing UST as a “secure” investment.
The stablecoin yield platform is being sued for customer damages incurred as a result of exposure to the Anchor Protocol and UST crash from the previous year.
In a Californian court, the decentralised finance yield platform Stablegains has been sued for allegedly deceiving investors and failing to comply with securities regulations.
Alec and Artin Ohanian filed a case with the U.S. District Court for the Central District of California on February 18.
In it, they asserted that Stablegains, a DeFi platform created in August 2021, routed all user monies to the Anchor Protocol without their consent or knowledge.
Anchor Protocol promised returns of up to 20% on Terra USD, the algorithmic stablecoin created by Terraform Labs (UST).
“As an early supporter of and investor in TFL [Terraform Labs], Stablegains is intimately familiar with UST and LUNA. In fact, Stablegains, Inc. falsely advertised UST as a safe investment.”
Stablegains offered its customers a 15% return, pocketing the difference between its yields and those of Anchor Protocol.
Plaintiffs further allege that Stablegains violated federal securities laws by selling UST as a security.
“Stablegains plainly failed to comply with federal and state securities laws. Stablegains failed to disclose that UST is in fact a security.”
In addition, the firm failed to register with the U.S. Securities and Exchange Commission as either a securities exchange or a broker-dealer, according to the complaint.
Following the collapse of the UST ecosystem in May 2022, the Ohanians declared that there were “catastrophic implications for Stablegains’ consumers.” UST decoupled from the dollar, resulting in a broader run on DeFi and crypto markets in May and a loss of approximately $18 billion for the Terra/Luna ecosystem.
The complaint asserted that after the crash, Stablegains revised its website and promotional materials touting UST as “safe” and “fiat-backed,” effectively conceding that UST was neither of these things.
Instead of liquidating assets and repaying customer funds, Stablegains “retained the majority of the devalued assets deposited by its consumers, choosing unilaterally to reroute them into Terra 2.0,” the company explained.
On May 22, Stablegains ceased its services, apps, and support for Anchor Protocol, requiring consumers to withdraw their funds. According to Cointelegraph, Stablegains faced a comparable lawsuit at the time.
The exact amount of damages claimed was not specified, but the plaintiffs demanded a trial.
The SEC filed a lawsuit against Terraform Labs and its founder Do Kwon on February 16, alleging that they “orchestrated a multi-billion dollar crypto asset securities fraud.”