Here’s Why Mirror Protocol Sued the U.S SEC

There has been a lot of crackdown on crypto companies, following authorities’ growing demand for regulations. However, these crackdowns have led to community members criticizing the US Securities and Exchange Commission for reportedly lacking a clear regulatory framework. Recently, Terraform Labs—the platform behind Mirror Protocol, and one of its founders, Do Kwon, sued the SEC for serving the latter a subpoena in public. The regulator issued the writ to the co-founder because of Mirror Protocol. Terraform Labs launched Mirror Protocol in late 2020 as a decentralized platform that allows users to use synthetic assets.

Mirror Assets Mirrors Prices Of Real-World Assets

The protocol also tracks the prices of stocks, exchange-traded funds, and futures, making it seem like a derivatives firm. It mints synthetic assets, mirroring the prices of real-world assets, thereby giving access to different traditional assets.
This, however, is the reason for the SEC’s concern over the relatively new project.

The regulator had informed Do Kwon of the investigation, soliciting for his cooperation in mid-2021. Reports show the SEC had also warned Terraform Labs against Mirror Protocol because the latter is allegedly similar to derivatives, which are strictly regulated in the US.

The United States SEC Served Terraform’s CEO Subpoena

The SEC, along with other related regulators, oversees and regulates the US derivatives ecosystem. Authorities also mandated users to trade on regulated markets. This made it necessary for many firms offering this service to bar Americans from using their services.

In September, the SEC issued Do Kwon a subpoena while the latter was on his way to the Mainnet Conference for a presentation. This led to Terraform Labs and Do Kwon suing the regulators for publicly “embarrassing” the Chief Executive Officer. According to reports, a process server gave the crypto entrepreneur the paperwork while exiting the escalator.

This, of course, caused an uproar on Twitter, with many crypto enthusiasts talking about the growing regulations in the US climate. Similarly, the SEC has also investigated other firms, which is believed to have violated federal laws.
About a month after the incident, Do Kwon sued the regulators while contesting the subpoena. The regulator issued the writ to get a testimony from the executive. However, Mr. Kwon asserted that he is a resident of South Korea and that the SEC lacked jurisdiction.

Kwon claimed the United States SEC lacked jurisdiction over him

The lawsuit argued that taking formal action was complicated because the SEC lacked jurisdiction over the CEO and the firm, Terraform Labs, based in Asia. The filling continued by saying the regulator wants to claim jurisdiction over Mr. Kwon and the company.

The co-founder also requested that the judge quash the subpoena. He opined that the lack of understanding is one of the leading issues with regulators. Additionally, the Singaporean claimed that SEC violated its own rules and that the subpoena is “null and void.”

According to the founder, the regulator had a private firm deliver the writ, thereby violating the rule of confidentiality, resulting in the new suit. The lawsuit alleged that the SEC did not follow due process, which is an infringement of the Due Process Act.

In May, he had an interview with SEC. During the interview, the Securities and Exchange Commission requested a series of documents on Mirror Protocol. However, this latest filling asserted that the request was too broad and “does not make sense.”

The SEC Wants To Regulate The DeFi Sector

The SEC is showing a lot of interest in decentralized finance (DeFi) projects. DeFi is a financial structure that functions without intermediaries. Many DeFi firms offer financial services, such as saving, lending, trading, and even swapping. Reports show that the regulator has yet to understand this new market and that the lack of regulations may jeopardize investors.

The SEC recently revealed plans to regulate the growing DeFi market and threatened to sue Coinbase over Lend. According to the exchange, Lend is a program, which allows users to earn 4% Per Annum. However, the regulator warned against the launching of the program because it sees it as a security. It’s safe to state that DeFi is growing exponentially, despite the growing regulations. Still, more DeFi products may be under threat, resulting from changing climate.

What Is Mirror Protocol?

Mirror Protocol allows users to access synthetic assets. This means users enjoy exposure to the assets they represent without actually buying them. Because the project tracks the price of real stocks, users who can’t ordinary access some product may benefit from the mAssets.

This DeFi project is a product of Terraform Labs, founded by Do Kwon. Additionally, Mirror’s assets—also known as mAssets, are on Ethereum and Binance Smart Chain. From all indications, this project strives to bridge real-world assets and cryptocurrencies.

Despite still developing, it has gotten a lot of attention from crypto community members. However, Some fear the latest crackdown could adversely affect the new project.

The Growing Regulations For Crypto Services

The growing regulations might be impeding the growth of the digital asset community. Many governments believe cryptocurrencies have accelerated money laundering and other financial crimes, making it necessary to create a regulator framework.

While regulation is crucial to maintain orderliness in every industry, stringent rules may discourage the creation of valuable products. Despite that, digital assets have revolutionized financial services and investments, helping holders find an alternative source of income, particularly in underdeveloped economies.

The crypto community is a community that attracts new members due to its innovative and novel features. However, stringent regulations, particularly in the US, could affect users’ access to valuable services.