Legal Trouble for Stablegains

The decentralized finance (DeFi) platform, Stablegains, is in hot water after a lawsuit was filed against it in California. It seems the folks at Stablegains have ruffled more than a few feathers, claiming they misled investors and danced around securities laws like a Broadway star.

Allegations Unpacked

On February 18, plaintiffs Alec and Artin Ohanian brought forth a complaint in the U.S. District Court for the central district of California. They’re alleging that Stablegains, allegedly, diverted customer funds to the Anchor Protocol without so much as a blink of consent.

Anchor Protocol was like that friend who promises you a great return on your investment; they advertised yields up to 20% on the Terraform Labs’ algorithmic stablecoin, Terra USD (UST). Our plaintiffs were evidently led to believe their funds were safe when, in reality, they ended up in a high-risk rollercoaster of a ride.

The “Safe” Investment That Wasn’t

Stablegains marketed UST as a “safe investment,” which, and this is a big ‘but’, turned out to be anything but safe. The Ohanians were quoted saying Stablegains was too cozy with UST and LUNA, highlighting how the firm pocketed the difference between the yields offered to its customers and what they were actually receiving from Anchor.

Federal Securities Law? What’s That?

The lawsuit alleges that failed disclosure regarding UST being classified as a security put Stablegains under the federal legislative microscope. They’re accused of not registering with the U.S. Securities and Exchange Commission (SEC) as a securities exchange or broker-dealer. If you’re thinking, “Uh-oh, this doesn’t sound good,” you’re absolutely right.

The Aftermath of the Collapse

After UST’s uncomfortable breakup with the dollar in May, which led to a dramatic fallout of around $18 billion from the Terra/Luna ecosystem, the Ohanians stated that this left many Stablegains customers hanging. Instead of doing the right thing and liquidating assets to pay their customers back, the platform allegedly decided to push its users into Terra 2.0 like a parent trying to shove veggies down the throat of a fussy toddler.

Stablegains shut down on May 22, requesting customers to withdraw their funds. They’ve faced significant scrutiny from various stakeholders, and it looks like this latest lawsuit is just another drop in the bucket of legal trouble.

What’s Next?

The Ohanians did not specify how much they’re chasing in damages, but they made it clear they want their day in court. Meanwhile, the SEC is busy cracking down on the wild wild west of crypto assets, as they recently filed a lawsuit against Terraform Labs and its founder, Do Kwon, for alleged multi-billion dollar fraud.

The world of decentralized finance is wild and unpredictable, and Stablegains’ story is just one chapter in a larger book. It leaves one to wonder, in a realm where everyone is seeking high yields, how can investors protect themselves from falling prey to misleading promises?