Paradigm, a cryptocurrency investment firm, has filed a friend-of-the-court brief in an ongoing lawsuit between the U.S. Securities and Exchange Commission (SEC) and blockchain-based payment network Terra to prevent the SEC from expanding its oversight of stablecoins.
According to Rodrigo, Paradigm’s legal chief, the company is not an investor in Terra and does not support either party in the lawsuit. Instead, its sole interest is in countering the SEC’s attempts to expand its regulatory reach to include the cryptocurrency industry.
Rodrigo explained that the SEC is trying to incorporate stablecoins into its regulatory framework by advancing an infinity theory that anything that can be traded as a so-called “cryptocurrency security” will be a vehicle.
The amicus brief filed by Paradigm focuses on responding to the SEC’s new theory that the algorithmic stablecoin UST is a security. The SEC’s arguments about the UST are in addition to its core claims in the lawsuit.
Paradigm argued, however, that it was crucial for Judge Rakoff, who presided over the case, to avoid inadvertently supporting this unsupported theory. The SEC may seek to apply this theory broadly to other stablecoins, which would have far-reaching implications for the cryptocurrency industry.
The move by Paradigm comes amid growing regulatory scrutiny of the cryptocurrency industry.
The SEC has been stepping up enforcement actions against various players in the industry, including cryptocurrency exchanges and issuers of initial coin offerings.
Paradigm’s amicus brief is just one of many ways cryptocurrency industry players are fighting back against what they see as excessive regulation by the SEC.
The outcome of the Terra case could set an important precedent for the treatment of stablecoins under U.S. securities laws, making it a case closely watched by the industry.