It has been almost a year since the sudden collapse of the Terra ecosystem, with it’s native token $LUNA crashing from All-Time-Highs to zero seemingly overnight. In a moment that has since been etched into the minds of the crypto class of 21, one of the most successful networks of this bull market completely imploded, leaving behind scattered remnants and a disgraced founder.
While founder and CEO of Terraform Labs Do Kwon has yet to be officially charged in courts despite reportedly being served with arrest warrants in his native South Korea, his freedom may finally be challenged with the SEC officially making a case against him.
Also Read: “I Bet Big And I Think I Lost” Do Kwon Tells All In Exclusive Interview
SEC Claims Do Kwon Mislead Investors on The Stability of UST
The 55-page document issued by the SEC states that Do Kwon and Terraform Labs offered “an array of interrelated tokens that were created, developed, offered, and sold” as profit-seeking investments, and that the collapse of Luna caused the loss of at least $40 Billion of market value.
While they do not make outright comments on the Luna/UST algorithm, they do point out that Do Kwon had repeatedly claimed that the tokens “would increase in value”, and that investors were mislead about the stability of the algorithmic stablecoin.
It also highlights that Do Kwon lied to $UST and $LUNA holders were lied to following the events of May 2021, when $UST deviated slightly below the $1 mark. While Do told holders that the peg was restored through the reliability of the algorithms’ mechanisms, it was actually being propped up by a large buyers which some have come to speculate to be Jump crypto.
This was especially problematic as the Terra ecosystem saw it’s true rise following this defense of the peg, with $LUNA gaining 1800% in the coming months. Alongside the growth of $LUNA was billions of dollars being poured into Anchor Protocol and heavy use of Mirror, a dAPP that allowed users to trade “mirrored” stock market assets, or mAssets.
The document goes on to classify $MIR, the governance token of Mirror Protocol, $UST, and $LUNA, and $wLUNA as securities, and that transactions on the Mirror protocol are Securities-based Swaps.
Do Kwon Lied About Chai’s Implementation of Terra
One of the selling points for Terra and $UST was that they were the backbone of Chai, a Korean-based payments solution used by thousands of merchants across the country. If this were true, Terra’s value prospect would be monumental, and would establish itself as one of the first true real-world use cases for crypto.
Unfortunately, the SEC has pointed out that all these claims were lies, and that the Terra team actually replicated complete Chai transactions to “make it appear that they were processed on the blockchain”.
They even went so far as to present this information live in a video on CNBC Africa in 2019 and included it in the slide deck for U.S. -based institutional investors
However, Chai have itself denied such claims, and acknowledged that it cannot use the blockchain to process payments as it would not have been “legally permitted in Korea”. Despite this, Do Kwon misrepresented the relationship between Chai and Terra to encourage investors, citing statistics such as “80K daily users” on the Chai platform.
Where Did The Luna Foundation Guard’s Bitcoin Go?
Prior to the collapse of $LUNA, Do Kwon formed the Luna Foundation Guard, or LFG, with the goal of defending the peg of $UST.
Funded by Terraform Labs and Do Kwon, LFG held billions in crypto assets, and was the third largest holders of Bitcoin at the time, after Tesla and Microstrategy.
Since the collapse of Terra and UST, however, one question remains:
Where did all their Bitcoin go?
The Luna Foundation Guard claims that it spent most of its reserves attempting to defend the peg, and were only left with 313 Bitcoin following the crash, a far cry from its originally 80,000 Bitcoin.
Furthermore, LFG never delivered on its promise to compensate $LUNA and $UST holders, instead the SEC documents shows that LFG still holds all of its Bitcoins in cold wallets, and that both Terraform Labs and Do Kwon have continuously been converting the Bitcoin to Cash through a Switzerland-based institution.
To date, they have withdrawn over $100 million is fiat through the bank.
Closing Thoughts
The allegations by the SEC are damning at best, with evidence from tweets, pitch decks, and literal YouTube presentations – and rightfully so, given that Do Kwon’s recklessness has lost countless investors their entire life savings.
However, while the SEC have managed to obtain all the receipts needed to try Do Kwon, they apparently have no idea where he is, despite multiple claims from Do Kwon himself that he is not hiding and simply living life in Singapore.
Regardless, a potential trial could finally shed some light on the questions many have around the collapse of Terra, and bring some much-needed closure for those who lost everything during the implosion of Luna.
Also Read: Why The SEC’s Crackdown On Crypto Could Benefit These 3 Stablecoins
[Editor’s Note: This article does not represent financial advice. Please do your research before investing.]
Featured Image Credit: Chaindebrief
