Coinbase Promotion of TerraUSD as Stablecoin Class Action

Coinbase is a marketplace for cryptocurrency, but the complaint for this class action claims it is also “a significant venture capital investor in [early phase] cryptocurrency companies and one of the largest financial backers of Terraform Labs.” Terraform created TerraUSD (UST), which was promoted as a “stablecoin,” but this complaint brings suit against Coinbase Global, Inc. and Coinbase, Inc., claiming that TerraUSD was never truly a stablecoin.

The National Class for this action is all persons in the US who bought or acquired TerraUSD in the US or its territories and whose transactions of TerraUSD were conducted through Coinbase, during the fullest period allowed by law. A California Subclass has also been defined, for those in the above class in California, who bought or acquired TerraUSD in California.

A stablecoin is a type of cryptocurrency that is supposed to be less volatile than others, the complaint says, “because they are backed by an underlying tangible asset.”

TerraUSD claimed to be pegged to the US dollar, so that each TerraUSD was supposedly worth $1. The complaint claims, “Because it is purportedly ‘pegged’ to a government-issued currency, and specifically the world’s reserve currency, it is marketed as a type of investment that can ‘virtually eliminate volatility.’”

The complaint alleges that Coinbase called TerraUSD a “decentralized stablecoin” in marketing materials. But the complaint alleges that TerraUSD is not backed by real dollars. It says that Coinbase “omitted material facts about TerraUSD, including the fact that Terraform Labs did not hold any tangible assets—such as another fiat currency or commodity—in reserve. Accordingly, the digital currency was never truly pegged to the US dollar.”

According to the complaint, Coinbase nevertheless helped Terraform Labs to promote the claim that TerraUSD was pegged to the US dollar.

How was the coin’s stability to be maintained? By what the complaint calls “an arbitrage trading strategy” involving a sister cryptocurrency, Luna, in which the two were traded for each other in a complementary way to maintain their values.

The complaint claims that a break from the purported peg to the US dollar was inevitable.

In May 2022, TerraUSD began losing value, and the idea of balancing trades with Luna failed to maintain its stability. The complaint alleges, “Within weeks, TerraUSD and Luna became practically worthless.” TerraUSD’s value dropped below 8 cents per coin. Those who’d bought the coin lost millions of dollars.

The complaint faults Coinbase for backing TerraUSD, for withholding the true risks of the currency, and for misleading those who bought the coin, believing they were buying a stablecoin.

Article Type: Lawsuit
Topic: Investments
Tags: Cryptocurrency, Deceptive Advertising, Negligence, Negligent Misrepresentation