Terra blockchain founder Daniel Shin indicted in South Korea

South Korean authorities announced today that they indicted the co-founder of Terraform Labs, the company that develops and manages the blockchain payment platform Terra. In accordance BloombergDaniel Shin and nine others linked to Terra now face multiple charges, including violating the Capital Markets Act, which regulates the country’s securities and financial markets.

Authorities charged eight people, including Shin, with illegal trading; two others are charged with breach of trust. The prosecutor says that all the defendants were directly involved in Terra, having handled marketing, system development and management. In addition, prosecutors have frozen 246.8 billion won ($184.7 million) in assets from the defendants. Korean officials said they were cooperating with the United States on the matter, although they did not elaborate.

Billed as a stablecoin, TerraUSD is not backed by real assets or fiat currency. Instead, it is backed by Luna, the original cryptocurrency of the Terra blockchain, which supposedly had a mechanism to restore its value to $1 if its value failed. In addition, investors saw it as an enticing opportunity to make money due to the Anchor lending program, which promised an annual return of 20 percent for coin deposits.

However, prosecutors claim that the Terra blockchain was a “fabrication” from the beginning, with the entire system essentially built on a house of cards. They claim that the blockchain algorithm that kept TerraUSD at a stable price was “impossible to get right”. The value collapsed in May 2022, when depositors lost confidence in the platform and at the same time tried to sell their investments. At the time of publication, Terra has a value of less than two cents.

Before the collapse, the defendants took 463 billion won (almost $346 million) in profits. In addition, prosecutors allege they illegally disclosed clients’ payment details and embezzled funds. Authorities say the defendants caused “astronomical damage” to global investors as the crash also played a role in the collapse of crypto hedge fund Three Arrows Capital and the broader $2 trillion slide in the cryptocurrency market.

“Shin has nothing to do with Terra, Luna collapses when he left [company] two years before the fallout, Shin’s lawyer, Kim Ki-dong, said in a statement. “He voluntarily returned to South Korea immediately after the collapse, and has faithfully cooperated with the investigation for over 10 months, hoping to contribute to fact-finding.”

In September, Korean authorities issued an arrest warrant for Shin’s co-founder, Do Kwon, who was also placed on an Interpol “red alert” list at South Korea’s request. He was eventually arrested last month in Montenegro under the Capital Markets and Fraud Act. The US Securities and Exchange Commission also charged Do Kwon and Terraform Labs in February.