Terraform Labs Restricts US Access, Withdraws $23 Million Liquidity Following SEC Ruling

• In response to the impending conduct injunction expected from the ongoing legal battle with the SEC, Terraform Labs announced measures to comply with regulatory requirements.
• These measures include barring U.S. users from accessing certain products and features starting April 28. Despite expressing frustration, the company acknowledges the necessity to adapt to the evolving regulatory landscape.

Amid the growing U.S. regulatory scrutiny, Terraform Labs has recently introduced some bold measures in place. Earlier this week on Thursday, April 25, Terraform Labs announced changes during the recent court ruling in its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC).

During the rule, Terraform Labs stated that it soon expects a conduct injunction that would prohibit them from conducting certain activities in the United States. As a result, the company is now preparing for injections by barring U.S. users from accessing some of its products and features, starting next week, onwards from April 28.

Terraform Labs (TFL) expressed frustration over the development, highlighting its staunch stance against geoblocking as a matter of principle. However, the company acknowledged the necessity to adapt to the policy change.

Certain projects, such as Alliance, an open-source Cosmos SDK module, and the Terra blockchain itself, will remain unaffected by the policy change.

As a result of the injunction, TFL is required to withdraw liquidity from positions on various platforms. The company disclosed its plans to begin withdrawing liquidity amounting to $23.8 million across three platforms—Astroport, Ura, and White Whale—starting on April 26. Each position involves a LUNA pair.

Terraform Labs specified that the withdrawn LUNA tokens will be stored in a multisig account throughout the bankruptcy proceedings.

SEC’s Requested Injunction Against Terraform Labs

In February 2023, the SEC filed charges against Terraform Labs, initiating legal proceedings. The trial commenced in March, culminating in a verdict in early April, where a jury found Terra and its former CEO, Do Kwon, liable for fraud, per the Crypto News Flash report.

On April 19, the SEC requested various injunctions against the defendants. These injunctions sought to restrict each party’s ability to engage in purchasing, offering, and selling crypto asset securities, including LUNA, and to prevent them from inducing others to partake in such transactions.

Additionally, the SEC requested monetary fines and penalties totaling $5.3 billion. Despite facing legal challenges and the collapse of its stablecoin, TerraUSD, which depegged from the dollar in May 2022, Terraform Labs continues to operate and offer certain products.

Key Developments in the Ecosystem

The Terra ecosystem has continued to progress irrespective of all the legal hurdles that it’s been facing over the past few months. As reported by Crypto News Flash, Terra Luna Classic is implementing a proactive measure to safeguard against potential spam attacks by introducing Proposal 12097. This proposal also entails raising validators’ commission from 0% to 2.5%.

The rationale behind the proposal is to incentivize small validators to enhance their infrastructures in order to counteract potential attacks. Increasing the minimum commission is seen as a means to encourage investment in better infrastructure.

Following approval to revise the cryptocurrency’s burn tax, Terra Luna Classic (LUNC) is also undergoing significant changes. The Terra Luna Classic community has voted favorably for an oracle pool distribution, marking a notable development in the project’s evolution, per the Crypto News Flash report.