Terra Founder’s House Raided as Korea Deepens Crypto Probe
The crash of Terra ecosystem, and the tokens Luna and UST, will go down as one of the most painful and devastating chapters in crypto history.
South Korean prosecutors raided Terra and Terraform Labs co-founder Daniel Shin’s home, deepening the investigation into allegations of illegal activity behind the failed stablecoins TerraUSD (UST) and Luna.
A series of raids on crypto exchanges and offices on Wednesday also included Shin’s home and his payment app Chai Corp., the Seoul Southern District Prosecutors Office said via a text message, confirming an earlier report from MBC News. Police also visited two affiliated companies, a spokesperson for the prosecutors said, declining to provide further detail in the ongoing probe.
Policymakers worldwide have zeroed in on stablecoins given the turmoil in the crypto markets, most notably the collapse of the popular TerraUSD token in May. That spurred a debate about whether blowups of crypto experiments could pose a risk to the wider financial system, along with calls for stronger regulation.
In South Korea, prosecutors conducted raids this week in 15 areas, including seven local exchanges such as Upbit, Bithumb and Gopax. The action took place about a month after authorities banned current and former employees of Terraform Labs from leaving the country. Prosecutors summoned a former official at a unit of Terraform Labs for questioning, KBS TV report has reported.
Prosecutors are also looking into whether the company’s other co-founder, Do Kwon, evaded taxes by moving profits from cryptocurrency transactions to an offshore account, local news agency Yonhap has reported.
Shin and Kwon, who is believed to be in Singapore, didn’t immediately respond to requests for comment.
UST And Luna Crash
The two crypto entrepreneurs started Terraform Labs together in 2018 and initially split ownership 50-50, Chai said in a statement to Bloomberg in May. Their idea was to use blockchain technology for payment services. But since South Korea lacked a regulatory regime for such offerings, Shin and Kwon decided to part ways, according to Chai.
In March 2020, Shin stepped down from his position as chief executive officer of Terraform Labs and reduced his stake in the company to focus on building Chai. Kwon took control of Terraform Labs, which launched the Terra blockchain to support decentralized-finance applications, Chai said.
TerraUSD, or UST, and its sister Luna token became a key part of Kwon’s wider project, backing applications like the Anchor lending protocol. A key premise underpinning the wider Terra ecosystem was UST’s peg to the US dollar, supposedly safeguarded by a complex mix of algorithms and trader incentives involving Luna. It was a different model to other stablecoins like USDC, which are backed by cash and other liquid assets.
UST’s de-peg in early May when the mechanism failed to protect it from a sharp selloff, rendering Luna nearly worthless and wiping out some $40 billion in combined market value. The UST collapse, in turn, exacerbated the digital asset debacle.
Since UST implosion, Shin has posted a notice on the Chai app to keep himself away from Kwon and TerraLabs.
A number of Luna investors filed a lawsuit with South Korean prosecutors in May, accusing Kwon and his company of committing fraud and engaged in illegal fundraising.