Crypto Crash: Arrest warrant issued for Luna’s co-founder
A showdown in the crypto industry appears to be on the way.
Almost four months after the collapse of Luna and UST, or TerraUSD, two sister tokens issued by the Terraform Labs platform, authorities seem ready to shed light on the reasons and those responsible for this rout
The collapse wiped out at least $55 billion, contributed to the bankruptcy of prominent crypto lenders and the ruin of a star hedge fund, and swallowed the savings of many private investors.
A court in South Korea has just issued an arrest warrant for Do Kwon, the co-founder of Terraform Labs, and five other people, the media said. They are accused of violating local market laws.
Those six people live in Singapore, Bloomberg said, citing a text message with prosecutors that issued the warrant.
The first dominoes to fall
Luna and UST were the first dominoes to crumble in what would later become a liquidity crisis for the crypto sector.
The two tokens crashed after UST lost its link to the dollar, the basis for it to qualify as a stablecoin. Such cryptocurrencies are linked to more stable assets, such as the US dollar or gold. From May 9 to May 13, at least $55 billion of market capitalization disappeared, causing many investors to suffer colossal losses.
UST was an algorithmically stable coin, which was not backed by dollar reserves, but rather by its sister asset Luna. Algorithmic stablecoins are different from centralized alternatives like Tether or USD coins, which are backed by actual dollars or equivalent assets stored in a bank.
The fall of these two tokens hit hedge fund Three Arrows Capital, also known as 3AC, which found itself unable to honor its payments to crypto lenders, including Voyager Digital and Celsius.
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Voyager and Celsius filed for bankruptcy, while 3AC was forced into liquidation.
TerraUSD’s fall sparked investigations in the US and South Korea and revived calls for stricter oversight of stablecoins. Institutional investors appreciate these cryptos because they are designed to be less volatile than other coins and to enable funds to move easily within the crypto ecosystem.
Last June, Terraform Labs employees told the US Securities and Exchange Commission that Do Kwon was withdrawing $80 million in the month before the UST and Luna tokens crashed.
According to the reports, the staff said they predicted the collapse of Terra and Luna and pointed out the danger to Do Kwon several times, but they were ignored.
Luna 2.0
The SEC reportedly found that a few months before Terra collapsed, about 100 billion won, or $78.1 million, of the company’s funds went out each month for operating expenses.
The federal agency is investigating whether the marketing of UST before it crashed violated federal investor protection regulations.
In his first interview since the collapse of Luna and UST, Do Kwon said last month that he was cooperating with authorities on their investigations. In May, he proposed a new chain to replace the existing Terra network. The Luna 2.0 would replace the existing Luna, which would be renamed the Luna Classic.
A majority of voters approved co-founder Do Kwon’s plans to revive the battered ecosystem. The new system “will effectively create a new Terra chain without the algorithmic stablecoin.”
“The old chain will be called Terra Classic (token: $LUNC), and the new chain will be called Terra (token: $LUNA). The chain upgrade will start a few hours after the launch moment,” the company tweeted in time.
“Terra 2.0 is coming,” the company tweeted. “With overwhelming support, the Terra ecosystem has voted to pass Proposal 1623, which calls for the creation of a new blockchain and the preservation of our community.”
