Terra Luna crash: CTO of Tether welcomes fair regulation of stablecoin market

If someone makes a product that acts like a financial security, they are required to comply with securities laws. The laws don’t have to explicitly say “this also applies to crypto”.

This is what many crypto projects are being held accountable for as the enforcement agencies catch up. If you offer a security but don’t adhere to securities laws, you are breaking the law.

Of course, many projects sidestep this altogether by operating out of countries that don’t have such regulations.

> For example what is the difference between 1% daily returns vs some cleaning product claiming it can remove all stains? I always assume both to be marketing lies. And I assume in both cases there is some fine print T&C that denies legal liability/contextualises claims.

The difference is that financial products have a lot of regulations and laws beyond just marketing claims. The difference between an interest-bearing security and a carpet cleaning product is so huge that I’m surprised you think they can even be compared in terms of regulation.

Securities and financial law goes far, far beyond marketing claims. It’s entirely unreasonable to think that financial instruments can simply promise something and then not deliver it because they say “just kidding” somewhere in the fine print.

1. First and foremost: because George Bush was forced. The Republicans are famously against interfering with the free market, so George Bush let the first couple of banks fail, and fail, and fail... by the time Bear Stearns failed, there were already many bank failures and George Bush still didn't bail them out.

2. The big failures, specifically: Bear Stearns and Lehman Brothers, had a big effect on the economy. Remember, George Bush _LET_ these banks fail, he wanted to be hands-off. The collapse of these two banks set of a large set of cascading bank failures that had an outsized effect on the "normal people's economy" of main street. George Bush started getting random phone calls from factories who "suddenly couldn't meet payroll", because their banks failed. It became obvious that bank-failures would lead to factory closures.

3. It was at this point, that George Bush took the unprecedented step to start saving banks. It was clear that the country couldn't take another $200+ Billion bank failure. Congress passed TARP and that was it. The banks were saved.

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Everyone agreed that saving the banks was allowing "moral hazard" to take place. But as what was discussed at the time, banks of that size are "too big too fail". If we, as a country, "let them fail", then random parts of the country / random parts of the economy blow up, in ways we don't understand.

It was easier to understand / fix the issues through a bailout, rather than randomly seeing thousands of people get fired at effectively random, as factories close.

Over the next few years, the plan was to reduce the "too big to fail" effect. As the US Economy was setting up new regulations to prevent "too big to fail", cryptocoins started up, and decided to recreate the too-big-to-fail problem all on their own.

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In 2008, we were too dumb and ignorant to see "too big too fail". But in 2022, we remember the issue. With any luck, our banking system is properly containerized and safe. No bailouts should be necessary to save our economy.