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Coinbase facing class-action suits over unstable stablecoins

The lawsuit was filed after users incurred losses due to the depegging of stablecoins

Published: Jun 20, 2022 05:00:04 PM IST

Image: Shutterstock

Terra-USTC fiasco’s domino effect continues to spiral in industry big-wigs as a class-action lawsuit was filed against Coinbase on Thursday. The lawsuit stated that the trading platform did not conduct due diligence before listing the TerraUSD Classic (USTC) stablecoin.

The lawsuit also alleged that the platform failed to disclose its financial relationship with Terraform Labs. This is the second class-action lawsuit in the works against Coinbase. A lawsuit was filed last month concerning the November de-pegging of the GYEN stablecoin (GYEN).

TerraUSD was deemed like every other stablecoin, with a low possibility of de-pegging against the USD. So when the news of the crash of $17.5 billion came to light, everyone was shocked.

The lawsuit alleges that Coinbase was negligent to undertake proper checks on Terraform Labs before listing USTC and misrepresented USTC's risk as an algorithmic stablecoin.

The lawsuit puts out a comparison of stablecoin information provided by different trading platforms such as Robinhood, Gemini, and Kraken to that provided by Coinbase and officially states that "rather than disclosing the nature of TerraUSD as uncollateralised, controlled by an algorithm, and highly risky, Coinbase passed it off as just another stablecoin."

The lawsuit also claims that Coinbase Ventures, the firm's investment company, was among one of the major investors in Terraform Labs, adding to the group's need to keep TerraUSD's volatile nature hidden from the public eye.

Milberg Coleman Bryson Phillips Grossman and Erickson Kramer Osborne are the law firms that are representing the plaintiffs and classes in the lawsuit case. The latter is also defending the plaintiffs in a dispute filed on May 13 against Coinbase and GMO-Z.com Trust concerning the November de-pegging of the Japanese yen-pegged GYEN stablecoin. GMO-Z.com is accused of neglecting its duties to the plaintiffs and the class in many ways, including with the design of stablecoin.

GYEN's overall valuation had risen after being listed by Coinbase and then, later on, had dropped within a week. This resulted in the company freezing some of their user's wallets, and allegedly, as per the lawsuit, users also lost some funds, stating that the amount was “untold millions”.

The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash