Recently, TrustToken and TrueCoin LLC, which is in operation in the cryptocurrency landscape, have been associated with some wrong stuff. According to the report, American firm TrueDigital and British entity Tether for allegedly lying about covering their stablecoin – TrueUSD (TUSD) — have agreed to pay $5 million each in order for a lawsuit filed by the U.S. Securities and Exchange Commission (SEC). The complaints pertain to a claim that all TUSD was U.S. dollar-backed, which, in fact, it says is not true, and some of the assets were poured into a risky foreign fund. This is a critical development for stablecoins as it questions its peg stability and raises uncertainty on the transparency & investor protection in the cryptocurrency space.
Misleading Claims and SEC Charges
According to the SEC’s complaint made public on Tuesday, TrustToken and TrueCoin misrepresented TUSD as a single-asset stablecoin fully backed by USD from November 2020 to April 2023. In this period, however, a good proportion of the reserves was channelled in a very risky offshore fund that left the investors in the red line. They revealed that, for instance, by September 2024, the SEC discovered that 99% of the reserves were invested in such risky funds.
“When investors invest in stablecoins, they expect this investment to be transparent, and unreliable information can lead to critical outcomes,” noted the head of the SEC investment probe division.
The SEC also added that the companies were involved in unregistered sales of investment contracts that are associated with TUSD and the TrueFi lending platform. Although TrustToken and TrueCoin should have had knowledge of redemption problems with the offshore fund by Fall 2022, they proceeded to make obviously misleading representations concerning the underpinning assets of TUSD, thus placing investors in a position of undisclosed risk.
TrueUSD’s Fall from Grace
The consequences of these actions have not been very positive for TrueUSD in the end. It traded at $0.979 as of the middle of January 2024, and at this time, TUSD was no longer anchored to the U.S. dollar. By the end of March, the outstanding amount of the stablecoin had been reduced from 1.1 billion TUSD to just 612 million. Currently, its market has shrunk even further, cutting its market cap to $495 million, which is 0.0215% of the $2.3 trillion worth of crypto assets.
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TUSD has seen a significant cut in its total supply and its market capitalization due to lower investors’ confidence after the SEC revelation. The problem escalated when TrustToken and TrueCoin did not do anything to resolve the problem; instead, they still gave false promises of the stablecoin again.
Settlement and Consequences
Therefore, TrustToken and TrueCoin have not admitted to the charges, and while not denying them, they will have to pay a penalty of $5 million and the amount they earned from the sale of tokens. The last assessment is still open to the court. The executive summary is as follows: Nevertheless, this latest settlement shows that the regulation of the crypto market in the United States is far from being finished by the SEC. They have all pointed to the fact that the regulatory body is yet to complete it’s probe into the matter, with more steps likely to be taken.
“This settlement should be a wake-up call for all crypto firms that the SEC will not hesitate to act where investors get preyed on,” Tenreiro said.
It also raises the question of why the stablecoin market requires even tighter regulation and more disclosure. This also speaks volumes on how technically difficult it is for regulators to monitor the emerging concurrent environment of cryptocurrencies.
TrustToken and TrueCoin: A Wake-up Call for Stablecoins
The TrustToken and TrueCoin cases are indicative of the fact that even having a base in a cryptocrinental-friendly country is not guaranteed enough, and even traditional crypto firms are not safe from regulators. Restrictions aside, the $5 million settlement is a heavy reputational loss for Circle, but it can turn into a blow for the entire stablecoin industry.
That is why investors and regulators are now wondering about the sustainability and transparency of other stablecoins in the market. As the SEC remains persistent in its probe, the existence and acceptance of TUSD and like tokens remain uncertain.
For now, this case is a wake-up call for both the industry and investors to be more careful and going forward, be more vocal in demanding more accountability from crypto projects. As is always the case in such scenarios, it remains to be seen whether TrustToken and TrueCoin will be able to re-establish credibility in today’s highly unpredictable world of cryptos. Keep following TheBITJournal and stay updated on latest crypto trends.
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