When algorithmic stablecoins collapse or fiat-backed stablecoins lose their dollar peg, investors suffer devastating losses. This playbook guides you through understanding your legal claims, documenting losses, and sending demand letters to stablecoin issuers, exchanges, and promoters.
Types of Stablecoin Depeg Events
Stablecoin Type
Depeg Mechanism
Recovery Prospects
Algorithmic (UST/LUNA, IRON)
Algorithm fails to maintain peg through mint/burn mechanics; death spiral when confidence collapses
Low to moderate; depends on SEC enforcement and class action recovery from remaining assets
Fiat-Backed (USDC, USDT)
Reserve adequacy concerns, banking partner failures, or redemption freezes cause temporary depeg
Moderate to high; issuers typically have reserves and may face breach of contract claims
Crypto-Collateralized (DAI, FRAX)
Collateral value drops below threshold; liquidation cascades during market crashes
Low; protocol governance typically shields developers from liability
Fractional Reserve
Reserves insufficient to cover redemptions; bank run dynamics
Moderate; fraud claims may apply if reserves were misrepresented
Why Demand Letters Matter
Preserve claims before statutes of limitation expire.
Establish standing for class action participation or individual litigation.
Create formal record for SEC whistleblower submissions.
Pressure exchanges to disgorge promotional fees from issuers.
Realistic Expectations
Algorithmic stablecoin issuers often have no remaining assets for recovery.
SEC enforcement actions may result in disgorgement funds for victims.
Class action settlements typically return 5-20% of losses after attorney fees.
Individual demand letters work best against solvent entities with clear liability.
Time-Sensitive: Many stablecoin depeg events trigger bankruptcy proceedings with claims bar dates. File proof of claim forms promptly when bankruptcy cases are filed. Demand letters to third parties (exchanges, promoters) should be sent before limitation periods expire.
Legal Framework for Stablecoin Depeg Claims
SEC and Securities Law
Securities Act Section 5: Unregistered securities offerings violate federal law. The SEC has pursued enforcement actions treating algorithmic stablecoins and their paired tokens as securities.
Securities Act Section 12: Purchasers of unregistered securities may rescind the transaction and recover their investment.
Exchange Act Section 10(b) and Rule 10b-5: Material misrepresentations about stablecoin reserves, stability mechanisms, or risks support fraud claims.
SEC v. Terraform Labs (2024): Established that algorithmic stablecoins and related tokens can be securities subject to SEC jurisdiction.
CFTC Jurisdiction
The CFTC classifies certain stablecoins as commodities subject to anti-fraud provisions.
Manipulation of stablecoin prices through wash trading or coordinated selling may violate the Commodity Exchange Act.
CFTC enforcement may result in restitution orders benefiting victims.
State Law Claims
State Securities Laws: Blue sky laws provide additional registration requirements and anti-fraud protections.
Consumer Protection Acts: UDAP statutes prohibit unfair and deceptive practices with enhanced damages.
Common Law Fraud: Misrepresentations about reserve backing or stability mechanisms support fraud claims.
Negligent Misrepresentation: Even without intent, careless false statements about stablecoin safety may be actionable.
Money Transmitter Violations: Unlicensed stablecoin issuance may violate state money transmitter laws.
Regulatory Developments: Congress is considering stablecoin legislation that may create new disclosure requirements and reserve standards. Current enforcement relies on existing securities, commodities, and banking laws. State attorneys general have also pursued enforcement actions against stablecoin issuers.
Documentation Checklist
Transaction Records
Exchange account statements showing stablecoin purchases with dates and amounts.
Wallet addresses holding stablecoins during the depeg event.
Transaction hashes for all acquisitions and any attempted redemptions.
Price data showing the depeg timeline and your losses.
Marketing Materials
Screenshots of issuer website claims about stability, reserves, or backing.
Social media posts from official accounts or founders.
Exchange listings describing the stablecoin as "safe" or "stable."
Promoter and Influencer Evidence
Videos or posts from influencers promoting the stablecoin.
Evidence of undisclosed compensation to promoters.
Exchange promotional campaigns featuring the stablecoin.
Yield farming or staking promotions promising unrealistic returns.
Reserve and Financial Evidence
Published attestation reports about reserve holdings.
On-chain evidence of reserve wallet holdings.
News reports revealing reserve deficiencies.
Bankruptcy filings showing actual vs. claimed reserves.
Archive Everything: Stablecoin issuers often take down websites and delete social media after collapse. Use the Wayback Machine to archive marketing claims. Screenshot and save all materials immediately upon learning of the depeg.
Demand Letter Strategy
Target Selection
Stablecoin Issuer: Primary target but may be insolvent. File proof of claim in bankruptcy and send demand letter to preserve rights.
Founders and Executives: Personal liability for fraudulent representations about reserves or stability.
Exchanges: Platforms that listed the stablecoin, especially those receiving promotional payments or making safety claims.
Promoters and Influencers: Individuals who received compensation to promote the stablecoin without disclosure.
Auditors and Attestation Firms: Companies that provided misleading reserve attestations.
Letter Components
Investor Identification: Establish your purchases, holdings, and losses with specific dates and amounts.
Misrepresentation Summary: Quote specific false claims about reserves, stability, or safety from official sources.
Depeg Timeline: Document when the peg broke and how quickly value was lost.
Regulatory Framework: Reference SEC, CFTC, or state law violations applicable to the conduct.
Specific Demands: Return of investment, accounting of reserves, cooperation with regulators.
Litigation Warning: Notice of intent to file suit or join class action if demands not met.
Coordination Considerations
Check for existing class actions before filing individual suit.
Consider SEC whistleblower submission for material non-public information about fraud.
Coordinate with other victims through community forums for collective action.
Monitor bankruptcy proceedings for claims deadlines and creditor committees.
Bankruptcy Stay: If the stablecoin issuer has filed bankruptcy, the automatic stay prohibits most collection actions. Demand letters to the debtor may violate the stay. Focus on non-debtor third parties while participating in the bankruptcy process.
Sample Stablecoin Depeg Demand Letter
[Date]
[Recipient - Exchange/Issuer/Promoter]
[Address]
Re: Demand for Compensation - Stablecoin Depeg Losses
Stablecoin: [Name, e.g., TerraUSD (UST)]
Total Loss: $[Amount]
Account/Wallet: [Exchange Account or Wallet Address]
Dear [Recipient]:
I represent [Investor Name], who suffered losses of $[Amount] due to the depeg of [Stablecoin Name]. This letter demands compensation for losses caused by [misrepresentations about reserve backing / failure to conduct adequate due diligence before listing / undisclosed promotional compensation].
INVESTMENT SUMMARY
My client purchased [Amount] of [Stablecoin] between [Start Date] and [End Date] based on representations that the stablecoin maintained a 1:1 dollar peg through [described mechanism - e.g., algorithmic stabilization, fiat reserves, etc.].
Purchase history:
- [Date]: [Amount] at $[Price] via [Exchange/Method]
- [Date]: [Amount] at $[Price] via [Exchange/Method]
- [Date]: [Amount] at $[Price] via [Exchange/Method]
Total investment: $[Amount]
Value after depeg: $[Amount]
Net loss: $[Amount]
MISREPRESENTATIONS
[For Issuer:]
Your organization made the following material misrepresentations:
1. [Quote from whitepaper or website about stability mechanism]
2. [Quote about reserve backing or collateralization]
3. [Quote about safety or low risk]
These statements were false and misleading. [Describe why - e.g., the algorithmic mechanism was fundamentally flawed, reserves were inadequate, etc.]
[For Exchange:]
Your platform listed [Stablecoin] and made the following representations:
1. [Quote from listing page about the stablecoin]
2. [Description of promotional campaigns]
3. [Any safety or due diligence claims]
You failed to conduct adequate due diligence before listing and continued to offer the stablecoin after red flags emerged, including [specific warning signs].
[For Promoter:]
You promoted [Stablecoin] to your audience through [medium - social media, YouTube, etc.] without disclosing compensation received from the issuer. Your promotional statements included:
1. [Quote from promotional content]
2. [Claims about safety or returns]
LEGAL BASIS
[Select applicable]:
- Securities Act Sections 5 and 12 (unregistered securities offering)
- Exchange Act Section 10(b) and Rule 10b-5 (securities fraud)
- [State] Securities Act Section [X] (state blue sky law)
- [State] Consumer Protection Act (unfair and deceptive practices)
- Common law fraud and negligent misrepresentation
The SEC has established in SEC v. Terraform Labs that algorithmic stablecoins and related tokens constitute securities subject to federal securities laws.
DEMANDS
1. Payment of $[Amount] representing my client's losses;
2. Accounting of all funds received from [Stablecoin Issuer] as promotional compensation;
3. Preservation of all documents relating to [Stablecoin] listing, promotion, and due diligence;
4. Confirmation of cooperation with SEC and state regulatory investigations.
RESPONSE DEADLINE
Please respond within fourteen (14) days. Failure to respond satisfactorily will result in:
- Filing of civil litigation seeking damages, rescission, and attorney fees;
- SEC and state attorney general complaint referrals;
- Participation in or initiation of class action proceedings.
My client reserves all rights and remedies available under federal and state law.
Sincerely,
Sergei Tokmakov
Attorney for [Investor Name]
owner@terms.law
Enclosures:
- Exhibit A: Transaction Records
- Exhibit B: Marketing Material Screenshots
- Exhibit C: Depeg Price Data
For losses under $100,000, class actions typically provide the most practical recovery path despite lower percentage returns. Individual litigation makes sense for larger losses or when you have unique evidence of fraud. You can file individual demand letters while monitoring class action developments. Opting out of a class action preserves individual claims but requires you to bear litigation costs.
Exchange liability depends on their conduct. Exchanges that received promotional payments from the issuer, made affirmative safety representations, or continued listing after clear warning signs may face liability. Most exchange user agreements contain broad liability waivers, but these may not protect against fraud or gross negligence. Focus demand letters on specific exchange misconduct rather than mere listing.
File a proof of claim before the bar date to preserve your recovery rights in bankruptcy. The automatic stay prevents collection actions against the debtor, but you can still pursue demand letters against non-debtor third parties like exchanges, promoters, and executives. Monitor bankruptcy proceedings for distributions and any litigation trust pursuing claims on behalf of victims.
Attorney Services & Contact
Stablecoin Loss Recovery
I represent investors who lost funds in stablecoin depeg events including algorithmic stablecoin collapses and fiat-backed stablecoin failures. Services include demand letters, regulatory complaints, class action evaluation, and individual litigation.
Email owner@terms.law or use Calendly for a paid strategy session.