Category: TerraUSD

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Crypto News Cryptocurrency Law Terra TerraUSD

Terra Drama Continues as Authorities Raid Exchanges Linked to the Collapse

South Korean authorities are raiding crypto exchanges linked to Terraform Labs’ collapse in May, according to report this week by News1 Korea:

‘At Least’ 15 Exchanges Raided

The Joint Financial and Securities Crime Investigation Team of the Seoul Southern District Prosecutors’ Office raided the offices of at least 15 entities, including Bithumb, Upbit, Coinone and Korbit. Prosecutors are seizing all materials that can work as evidence if Terraform Labs CEO Do Kwon or any other executive is found guilty of causing Terra’s meltdown.

A month ago, claims surfaced on Twitter accusing Do Kwon of cashing out over US$80 million a month prior to the LUNA collapse, which caused a domino effect on the stablecoin market.

Shortly after, Korean authorities launched a full-scale investigation targeting Terraform Labs staff. The company’s employees, who have been prohibited from exiting the country, were summonsed by prosecutors to testify as to their involvement with the project.

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Terra TerraUSD

Korean Authorities Target Terraform Labs Staff for Questioning

Despite launching a new blockchain for LUNA, things appear to be going from bad to worse for Terraform Labs as revelations emerge that South Korean law enforcement officials are probing its staff in relation to the LUNA/UST implosion:

Authorities Dig Deeper into Terra Ecosystem Collapse

According to a report by a local news outlet, prosecuting authorities have commenced a full-scale investigation into the Terra unwinding. The report notes that it spoke with several employees involved in the development of the project, with one stating:

Even at that time, there was a warning inside that there could be a collapse at any time, but CEO Kwon Do-hyeong forced the coin to be launched.

Anonymous Terraform Labs employee, JTBC

According to local news agency JTBC, a team focused on prosecuting securities-related crimes summoned all Terraform Labs employees and developers to submit any related materials they might have. In addition, all employees either have been or will be investigated as part of the process.

The prosecution managed to secure a statement from one anonymous employee who worked there from 2019, claiming that LUNA and Terra should not have been launched since its own internal pilot model had failed:

If you pay interest of several tens of percent to investors without a stable collateral or profit model, people may flock to you at the beginning, but at a certain point in time it has no choice but to collapse because it cannot handle interest payments and fluctuations in value.

Anonymous employee, Terraform Labs

The report went further to describe how this was not founder Do Kwon’s first attempt at a cryptocurrency, the other being Basis Cash which, much like LUNA, fell sharply after an initial price increase.

Prosecutors said they were investigating the matter in its entirety and whether there was any “intentional price manipulation or whether the domestic virtual currency exchange went through a proper listing review process”:

Stormy Times Ahead

Meanwhile, as official investigations continue, 76 victims have filed a formal complaint with the Prosecutor’s Office against Terraform Labs, Do Kwon, and co-founder Shin Hyun-seong. According to JTBC, in total the complaints are tied to losses worth 6.7 billion won (US$5.4 million):

Simultaneously, police are attempting to freeze the Luna Foundation Guard’s remaining assets, not to mention the US$78 million tax evasion fine due by the crypto startup. If recent developments are anything to go by, Terraform Labs looks set to remain in the headlines for all the wrong reasons, at least for now.

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Crypto News Terra TerraUSD

LUNA 2.0 Launches Successfully as Previous Chain Renamed to ‘Terra Classic’

Following the implosion of LUNA and UST, this past weekend saw the launch of Terra 2.0, albeit without an algorithmic stablecoin which arguably led to Terra Classic’s downfall.

Terra 2.0 Goes Live, Tokens Airdropped

Terra’s new blockchain launched on mainnet with the express intention of reviving the Terra ecosystem. This follows the dramatic collapse of its algorithmic stablecoin UST, which depegged from the US dollar a few weeks ago.

With the new chain operational, the original network has since been renamed to “Terra Classic”, whose tokens are now known as LUNA Classic (LUNC). Interestingly, the new blockchain has elected to steer clear of an algorithmic stablecoin, instead electing to stick with LUNA tokens only.

LUNA apparently has a fixed supply of 1 billion, relative to LUNC’s supply which is over 6.5 trillion. As per an official announcement, holders of LUNC will receive 70 percent of the total supply, with the amount depending on whether the tokens were held before or after UST’s depeg.

Holders can expect to claim their LUNA from a participating centralised exchange or Terra’s own website. Critically, not all of the airdropped tokens will be claimable at launch, as only 30 percent of the initial supply may initially be claimed. The remaining 70 percent will be staked directly with validators to “ensure network security” for a period of up to two years.

Aside from the 70 percent allocation to LUNA Classic holders, the remaining fixed supply will be allocated to Terra’s treasury.

LUNA Off to a Difficult Start

Shortly after going live, LUNA dropped precipitously by some 80 percent. While one could infer that this points to a lack of faith in the new blockchain, others had a more pragmatic outlook:

Still, Terra’s outspoken founder Do Kwon remains a controversial figure and, on announcing the new blockchain going live, has received a swarm of responses questioning his character:

Notwithstanding a successful launch of Terra 2.0, a hefty fine for tax evasion and a class-action lawsuit loom large for Terraform Labs. While the immediate future is uncertain, this saga is certainly far from over.

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Crypto News Cryptocurrency Law TerraUSD

Terraform Labs Update: South Korean Police Move to Freeze Foundation’s Assets

The Terraform Labs debacle has taken on a new twist as South Korean law enforcement authorities are reportedly moving to seize the remaining assets of the Luna Foundation Guard (LFG).

Since depegging from the US dollar, both UST and LUNA have collapsed in spectacular fashion, despite injections of capital and failed revival plans that were dead on arrival. With a class action lawsuit looming, things appear to be going from bad to worse for Terraform Labs and its formerly outspoken founder, Do Kwon.

The Saga Continues

According to a local report, law enforcement officials in South Korea are taking action to freeze assets tied to the non-profit group LFG (Luna Foundation Guard). The report suggests that the Seoul Metropolitan Police Agency has asked multiple exchanges to block LFG from withdrawing any corporate funds.

Police indicated that their interest was piqued upon hearing that LFG may have embezzled funds, however it is interesting to note that per the report, the exchanges have no obligation to comply with law enforcement officials’ request.

Simultaneously, it was also reported that following the Terra ecosystem collapse, Korean legislators had been meeting with the five biggest crypto exchanges to establish the extent of loss and who should be held accountable.

We will request a quality investor protection policy to be implemented amongst exchanges.

Yoon Chang-hyeon, chairman, People Power Party’s Virtual Assets Special Committee, Facebook post

Worst Yet to Come for Terraform

A few exchanges have elected to delist LUNA, while others have placed an “investment warning” on the now virtually worthless token. From its high of close to US$120 it is now trading at US$0.0001626.

Although it’s still early days, current indications suggest that the worst is yet to come for Terraform Labs and its founders. After mocking detractors for being “poor”, it may ironically be Do Kwon who suffers that fate, or even worse.

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Crypto News TerraUSD

Terraform Update: Tax Authorities Slap Firm With $78 Million Fine

The woes continue to pile on for Terraform Labs following LUNA’s unceremonious collapse and UST completely depegging from the US dollar. Now, a local report suggests that South Korean tax authorities are slapping the firm with a US$78 million fine for tax evasion.

Bad to Worse

Amid the LUNA debacle, the South Korean government is turning up the heat on Terraform Labs as an estimated 200,000 South Koreans lost much of their net wealth, not to mention at least eight people who reportedly committed suicide as a result.

As a class action lawsuit looms in the background, local tax authorities have claimed that Terraform Labs sent LUNA from its Singapore-based entity to the Luna Financial Guard (LFG) in order to avoid taxes. Furthermore, it is alleged that additional taxes are owed in relation to the bitcoin that was acquired and later sold by LFG.

The firm’s controversial co-founder, Do Kwon, is said to hold around 92 percent in Terra Singapore, with the balance belonging to another South Korean national. Authorities relied on South Korean corporate tax laws, which provide that foreign-registered companies are treated as domestic if decision-making and operations are carried out locally:

Image
Do Kwon regularly called critics poor. Source: Twitter

Terraform Labs Used Complex Legal Structures

Terraform Labs reportedly first piqued tax authorities’ interest in June last year on suspicions of income and corporate tax evasion. The investigation into the firm and its subsidiaries revealed that the company was registered in the Virgin Islands, as well as Singapore. Since decisions were being made from South Korea, the firm was fined US$3.6 million in income tax and US$34 million in corporate tax.

Kwon was therefore reportedly unhappy with local crypto taxation laws and since December had been trying to close down Terra’s domestic operations. Sadly for him, as LFG sought to recover losses on the Anchor protocol and defend the UST peg, tax authorities were once again alerted.

Limited Remedies Available

With a congressional hearing on the cards, a lawsuit and a massive tax bill, the future is looking dim for Terraform Labs. For all the talk of decentralisation and building communities, it’s difficult to avoid the conclusion that Terraform was a company centrally controlled by its founder.

While government has the tools at its disposal to collect what is owed, users caught up in the fiasco are left with few remedies, if any:

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Bitcoin Crypto News Cryptocurrency Law Regulation Terra TerraUSD

UST Meltdown Spurs Global Warnings of Crypto Regulation

Unsurprisingly, the UST depegging fiasco has triggered regulators around the world to accelerate their efforts. While some persist in being hostile towards any regulation, others have expected it from the outset:


Regulators Seize the Opportunity Amid LUNA Debacle

When history is written, this past week may well be regarded as a watershed moment for the crypto sector as LUNA plunged 97 percent overnight.

To illustrate the extent of the carnage, consider that LUNA plummeted from an all-time high of US$119 in April to US$0.000143 at the time of writing. In addition, its sister not-so-stablecoin UST has completely depegged from the US dollar since May 9, currently trading at US$0.0901.

The LUNA collapse alone saw US$50 billion in market capitalisation erased in a week, leading crypto-sceptic regulators around the world to seize the opportunity to capture the narrative.

Regulations Incoming

With the market down US$500 billion in the past two weeks and with UST completely depegging from the US dollar, regulators’ initial focus has been on stablecoins.

In addition, crypto regulation has been placed on the agenda for the upcoming G7 summit in Germany, with French central banker Francois Villeroy de Galhau commenting:

What happened in the recent past [UST meltdown] is a wake-up call for the urgent need for global regulation.

Francois Villeroy de Galhau, governor, Bank of France

In the US, Securities and Exchange Commission chair Gary Gensler said on May 16 that “a lot [needs] to be done here, and in the meantime, the investing public is not that well-protected”, adding: “We’re going to continue to be a cop on the beat.”

Treasury secretary Janet Yellen also told told lawmakers last week that UST’s fate underscored the need for bank-like regulations to be imposed on stablecoin issuers. An anonymous official familiar with the matter added: “In the absence of congressional action, last week’s volatility will put regulators and stakeholders on a stronger footing if they feel the need to act alone to mitigate the risks.”

Shortly after, a non-partisan report by the Congressional Research Service echoed Washington’s sentiments, arguing that the stablecoin industry lacks the regulations found in traditional finance systems to safeguard investors. The overarching theme of the policy recommendations relates to transparency and disclosure.

Separating the Wheat from the Chaff

While regulation is not welcome by many, it appears all but inevitable that it will play an increased role going forward. It’s difficult to envision how a parallel system (ie, crypto) with little to no disclosure obligations can persist for long.

As exchanges like Coinbase face class action lawsuits for selling “unregistered securities”, it’s likely that most cryptocurrencies will find themselves falling within the parameters of increased regulation.

Not everyone is concerned, however, as Bitcoiners like Michael Saylor believe that everything outside of Bitcoin is an unregistered security.

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Beefy Finance Crypto News DeFi Terra TerraUSD

Beefy Finance Token (BIFI) Spikes 168% Overnight, Benefits From Terra Collapse

BIFI, Beefy Finance’s native cryptocurrency, spiked 168 percent overnight after the protocol upgraded its network and capitalised on TerraUSD’s collapse.

After hitting a low of US$387.80 on May 14, the token is now trading at US$646.67 with 24-hour trading volume up 7 percent.

BIFI/USDT Chart: Source: coinmarketcap.com

BIFI’s price surge can be attributed to three important updates. According to recent tweets, Beefy Finance has upgraded its 12 stablecoin vaults to offer higher yields, added new options in its liquidity pools, and integrated with layer-1 protocol Oasis Network.

Taking Advantage of the UST Aftermath

A collapsing TerraUSD, alongside the 20 percent yield offered by Anchor Protocol for UST deposits, has allowed Beefy Finance to take advantage of the aftermath, introducing new options in liquidity pools and opening new vaults in an attempt to capture idle users and capital:

The integration with Oasis Network enables Beefy Finance to support numerous blockchains including Ethereum, Binance Smart Chain, Polygon, Matic, and more, making it one of the largest cross-chain protocols in existence.

The protocol also integrated Tron Network’s USDD stablecoin with a 62.5 percent APY (Annual Percentage Yield) for depositors on the quad stablecoin pool:

While the crypto market is experiencing one of the roughest months in its history, decentralised protocols like Beefy Finance are shedding some light on the industry. The opening of new vaults alone attracts fresh liquidity to the protocol by adding support to several assets from different blockchains.

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Crypto News Terra TerraUSD

Heartbroken Luna Founder Do Kwon Proposes Terra Revival Plan

Earlier this month, Do Kwon, the outspoken founder of Terraform Labs, said that 95 percent of projects in the crypto space would die, adding that there was also “entertainment in watching companies die”.

As it turns out, his creation may be next:

Do Kwon ‘Heartbroken’

In a tweet thread, Do Kwon has said that he was “devastated” about the much-publicised UST depegging and LUNA collapse, adding he was “heartbroken” about the pain his creations has caused investors.

Not one to go down without a fight, he continued, saying:

I still believe that decentralised economies deserve decentralised money – but it is clear that $UST in its current form will not be that money.

Do Kwon, Terraform Labs

He then pointed to a “revival plan“, begging the question as to how decentralised the ecosystem truly is. Quite expectedly, the crypto community remained highly sceptical:

A Plan to Resuscitate UST and LUNA

Kwon’s plan amounts to a restart of the entire Terra blockchain, with network ownership getting distributed entirely to UST and LUNA holders through 1 billion new tokens as follows:

  • 400 million (40 percent) to LUNA holders before the depegging event;
  • 400 million (40 percent) to UST holders pro-rata at the time of the new network upgrade;
  • 100 million (10 percent) to LUNA holders at the final moment of the chain halt; and
  • 100 million (10 percent) to the Community Pool to fund future development.

While a decentralised economy does need decentralised money, UST has lost too much trust with its users to play the role. The blockchain underpinning LUNA and UST was shut down twice by validators over the past day.

Do Kwon, Terraform Labs

UST Debt Holders ‘Deserve to be Compensated’

Kwon added that he did not sell any of his LUNA or UST during the “incident”, continuing: “Even if the [UST] peg were to eventually restore after the last marginal buyers and sellers have capitulated, the holders of Luna have so severely been liquidated and diluted that we will lack the ecosystem to build back up from the ashes.

“UST holders need to own a large share of the network; as the network’s debt holders, they deserve to be compensated for the tokens they have been holding to the end.”

At this juncture, it doesn’t appear as if the market is onboard with the plan. At the time of writing, UST had collapsed to US$0.15, erasing US$30 billion, not to mention LUNA, which has tanked from US$120 in April to $0.0001896.

On the bright side, some have reflected on the potential lessons investors can take away from the whole UST/LUNA saga:

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Crypto News DeFi Market Analysis Terra TerraUSD

Terra (LUNA) Collapse Triggers Contagion Across DeFi

The sudden de-pegging of TerraUSD (UST) and the associated breathtaking decline of Terra (LUNA) over the past few days has triggered huge falls across the wider DeFi market, extending beyond those projects directly linked to the Terra ecosystem.

While projects built on Terra have been hardest hit, the damage has spread widely. DeFi tokens on virtually all blockchains are now seeing sizeable declines, even if they have no direct link to the Terra ecosystem:

Terra-based DeFi Projects See Massive Declines

According to CoinGecko, the native token for Anchor Protocol (ANC), the largest DeFi protocol in the Terra ecosystem, is down over 90 percent since May 7, falling from US$2.14 to US$0.19 at the time of writing.

Other prominent Luna-based DeFi projects have also taken huge hits. Since May 7 the native token of Astroport (ASTRO), an automated market maker protocol, has dropped 89 percent and Mars Protocol (MARS), an on-chain credit protocol, is down almost 65 percent.

At the time of writing the native cryptocurrency of the Terra blockchain itself, LUNA, is down an astonishing 99.6 percent since May 7, trading at a mere US$0.29. Just over a month ago it hit its all-time high of US$119.18. 

The Luna Foundation Guard, the group tasked with stabilising UST’s value, is currently seeking an additional US$1 billion capital to attempt to restore the stablecoin’s peg and potentially save the Terra ecosystem from complete collapse – a goal that is, sadly, beginning to look unachievable:

Contagion Spreads to Connected Blockchains and Beyond

Assets from the Cosmos ecosystem have also seen large declines due to their integration with Terra through the Interblockchain Communication Protocol. CoinGecko shows that since May 7, ATOM is down about 47 percent, while DeFi tokens Mirror Protocol (MIR) and Osmosis (OSMO) are down 73 percent and around 50 percent respectively.

Virtually all DeFi projects across all blockchains have been negatively impacted by this ongoing collapse. According to data from DeFi Llama, total value locked (TVL) across the entire DeFi market has dropped more than 21 percent in the past 24 hours and, since April 4, TVL is down over 48 percent – now sitting at US$120.17 billion, down from US$231.5 billion. 

Of the top 10 DeFi projects listed on DeFi Llama, every one has seen seven-day losses of TVL in excess of 27 percent:

7-day losses of TVL experienced across the board. Source: DeFi Llama

In one small piece of positive news for DeFi, earlier in the week Compound Treasury became the first institutional DeFi project to get a credit rating from ratings agency Standard & Poor.

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Crypto News Markets Regulation Stablecoins TerraUSD

US Fed and Treasury Hint at Incoming Stablecoin Regulation Following UST Fiasco

Both the US Federal Reserve and Treasury are eager to see stablecoins regulated by the end of this year, a move they say would improve the overall financial stability of the US economy.

A new report from the Federal Reserve has identified several risks associated with stablecoins – cryptocurrencies whose value is pegged to the US dollar – and has suggested that government-backed alternatives may reduce risks to consumers and investors.

The report follows the recent collapse in value of the stablecoin Terra USD (UST), which threatens to destabilise the DeFi market, and calls from Treasury Secretary Janet Yellen for stablecoin legislation to be enacted by the end of 2022.

Report Identifies Weaknesses of Asset-Backed Stablecoins

The Federal Reserve Board’s ‘Financial Stability Report’ identifies significant stability risks in the US economy. When discussing stablecoins the report focuses on centralised, asset-backed stablecoins such as Tether and USDC, highlighting the opaque nature of the assets backing the coins and the risks posed if or when there are runs on these coins.

Stablecoins typically aim to be convertible, at par, to dollars, but they are backed by assets that may lose value or become illiquid during stress; hence, they face redemption risks similar to those of prime and tax-exempt MMFs [money market funds]. These vulnerabilities may be exacerbated by a lack of transparency regarding the riskiness and liquidity of assets backing stablecoins.

US Federal Reserve report

Algorithmic Stablecoins Aren’t Necessarily Stable

The recent decoupling of TerraUSD from the dollar has shown yet again that algorithmic stablecoins, like their asset-backed counterparts, are not necessarily as stable as they purport to be. 

Over the past few days UST has fallen dramatically in value, at one stage dropping as low as US$0.60 after its algorithm failed to function as intended and the delayed deployment of its Bitcoin reserves failed to prop up its price. According to CoinGecko, at the time of writing UST was changing hands at US$0.83.

UST isn’t the first algorithmic stablecoin to face stability issues; last year, Iron Finance plunged all the way to zero after a similar decoupling triggered a bank run costing investors millions.

Treasury Secretary Wants Legislation, Fast

US Treasury Secretary Janet Yellen. Source: ledgerinsights.com

In a further sign that legislation governing stablecoins in the US may be imminent, Treasury Secretary Yellen, when questioned on the issue during a May 10 hearing, responded that it was “important, even urgent” that Congress act. She went on to say she considers it “highly appropriate” that regulation should occur by the end of the year.

Yellen’s sense of urgency for legislation seems to have been heightened by the problems currently confronting UST:

A stablecoin known as TerraUSD experienced a run and had declined in value. I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability and we need a framework that’s appropriate.

Janet Yellen, US Treasury Secretary

This talk of imminent stablecoin legislation follows speculation last year that the US government was considering offering insurance to stablecoin holders of up to US$250,000, similar to the protections provided to account holders at insured banks.