It has been claimed that the authorities in Singapore are looking into allegations of cheating and fraud involving the cryptocurrency lender Hodlnaut.
There were multiple complaints lodged against the platform between the months of August and November 2022, according to reports that were published in the local media. As a result of these complaints, the commercial affairs department of the police department has opened an investigation into the founders of the exchange.
The bulk of complaints, according to the Singapore authorities, focus on deceptive claims and misinformation about the company’s exposure to a particular digital token.
Investors who were adversely affected by the Hodlnaut problem were also instructed by the police to register a complaint online and present verified evidence of their transaction histories on the site.
The cryptocurrency lending platform showed the first symptoms of difficulty on August 8, when it temporarily halted withdrawals on the site, claiming a liquidity shortage as the reason.
At the time, the platform said that they had no exposure to the algorithmic Terra stablecoin, which has since been discontinued and is now known as TerraUSD Classic (USTC).
On-chain data, however, contradicted the assertions made by crypto lenders and revealed that they possessed at least $150 million dollars worth of USTC.
In October, a court report provided more evidence that the data stored on the chain were accurate.
According to the article, the cryptocurrency lender suffered a loss of around $190 million as a result of Terra’s collapse. Subsequently, in order to conceal their level of risk, they destroyed thousands of papers linked to their investments.
After the collapse of the Terra ecosystem, Hodlnaut was able to keep its exposure to USTC a secret for almost three months. However, it eventually fell victim to the liquidity crunch, which forced the company to seek judicial management, during which a court appointed a new interim CEO for the company.
After a delay of three months, the directors of the company are now the subject of an investigation by the police for failing to keep the users informed.
In August, the cryptocurrency lender said that it was working on a strategy to restructure in the hopes that it would soon be able to resume operations.
Prosecutors in Seoul have said that a report about crypto fugitive Do Kwon’s departure from Singapore to Dubai in September is true. They added that his travel to Dubai is likely a stopover to another destination.
Bloomberg released the information stating that “prosecutors in Seoul said in a text message late Thursday that a report Kwon had left Singapore and flown to Dubai likely as a stopover to destinations unknown ‘was not false.'”
Kwon faces charges in South Korea and has been accused of breaching capital-markets law. Although he has said he is ready to cooperate with the authorities, Kwon has kept his location a mystery, citing that he has received death threats.
Kwon went incognito in September after officials said he was no longer in Singapore, where his project had a base.
“It’s not in the interest of being on the run,” he said. “I don’t want to disclose where I live. It’s just that every time the location where I live becomes known, it becomes almost impossible for me to live there.”
According to Blockchain.News, Kwon and five other Terraform Labs executives face allegations of breaching capital markets laws in South Korea. They were issued an arrest warrant on September 13 from the court in Seoul for allegedly violating the nation’s capital markets law after the highly-publicized collapse of its algorithmic stablecoin UST and its associated token Luna in May.
Almost two weeks later, a red notice from Interpol was issued for his arrest after a request from prosecutors in South Korea, making him a fugitive in almost 200 countries across the globe.
According to The Korea Times, South Korean investigation authorities have requested neighbouring countries to cooperate in identifying Kwon’s specific whereabouts.
The Korea Times also reported that according to the Ministry of Foreign Affairs, Kwon’s passport would soon be invalidated.
He has until November 2, 2022, following which he will be barred from entering any country legally if he fails to give up his passport. Previously, he was ordered to surrender his passport on October 5. However, he refused to comply.
In May, Kwon’s Terraform Labs crypto project suffered a $60 billion implosion. It had a wider impact that affected the overall crypto market, which convulsed the digital-asset sector and saddled investors with losses.
Currently, the crypto sector still remains rattled by the downfall of the stablecoin, and recovery is still under process.
In what appears to be the longest interview session Do Kwon has had since the collapse of Terraform Labs and its associated tokens LUNA and UST, founder, Do Kwon, has granted over an hour of an interview to crypto Journalist and host of the Unchained Podcast Laura Shin.
In the interview, Kwon said he is currently cooperating with South Korean regulators but has not felt the need to turn himself in as he has not seen an arrest warrant from the prosecutors yet.
“We haven’t seen a copy of the arrest warrant so every piece of data we are consuming is from the media,” Kwon said, affirming that all of the document requests he has been served has been treated.
One of the most important talking points with Shin was the remorse he felt for the whole collapse of the protocol. He emphatically said he was “sorry” about how everything went down and said he believes every investor in the LUNA and UST believed his assertions that the algorithmic stablecoin can be kept stable.
Kwon said he believes the accusations of fraud and scams are unwarranted and that every investor deserves to know what really transpired. He said he understands that it is very difficult to leave with immense losses and that is part of what breaks him the most.
The embattled developer said besides the collapse of the LUNA and UST tokens and the ecosystem that was built around the coins, he has contributed positively to the growth of the crypto ecosystem in the five years he has been a leader in the space.
Despite the more than an hour interview, Kwon did not disclose his location, and besides South Korean prosecutors that are on the hunt for him, Interpol has also issued a Red Notice for him, making him one of the most wanted humans alive.
With many crypto companies notably finding it difficult to share the extent to which the collapse of TerraUSD (UST) and LUNA coins affected their businesses, Simon Seojoon Kim, the Chief Executive Officer of South Korean venture capital firm Hashed, has revealed how much the firm lost when Terra collapse back in May.
In an interview with Bloomberg, Kim revealed that Hashed acquired as many as 30 million LUNA tokens when the project was still in its infancy. The investment grew alongside the protocol, and at the time when LUNA attained its All-Time High (ATH) back in May, the venture capital investments in the token have grown to $3.6 billion.
Kim did not reveal that Hashed sold any of the tokens prior to the crash but noted that despite the crash, his firm still believes in the potential locked up in the digital currency ecosystem. In light of this, Kim told Bloomberg that Hashed is looking to raise a new funding round with the projection to back gaming protocols building in the Wbe3.0 world.
“In the tech sector, there’s no such thing as a portfolio that guarantees success, and we make our investments with that in mind,” said Kim. “We believe in the community’s growth, and that has never changed.”
Known for his bets on platforms like Sky Mavis, the parent company of Axie Infinity, and The Sandbox, Kim is leveraging his experiences picking up good protocols in the gaming sector to back. While he takes responsibility for the turnout of the LUNA token per Hashe’s investments, Kim reiterated that the VC does not give investment advice seeing most projects it backs are in their experimental phases.
With many crypto companies notably finding it difficult to share the extent to which the collapse of TerraUSD (UST) and LUNA coins affected their businesses, Simon Seojoon Kim, the Chief Executive Officer of South Korean venture capital firm Hashed, has revealed how much the firm lost when Terra collapse back in May.
In an interview with Bloomberg, Kim revealed that Hashed acquired as many as 30 million LUNA tokens when the project was still in its infancy. The investment grew alongside the protocol, and at the time when LUNA attained its All-Time High (ATH) back in May, the venture capital investments in the token have grown to $3.6 billion.
Kim did not reveal that Hashed sold any of the tokens prior to the crash but noted that despite the crash, his firm still believes in the potential locked up in the digital currency ecosystem. In light of this, Kim told Bloomberg that Hashed is looking to raise a new funding round with the projection to back gaming protocols building in the Wbe3.0 world.
“In the tech sector, there’s no such thing as a portfolio that guarantees success, and we make our investments with that in mind,” said Kim. “We believe in the community’s growth, and that has never changed.”
Known for his bets on platforms like Sky Mavis, the parent company of Axie Infinity, and The Sandbox, Kim is leveraging his experiences picking up good protocols in the gaming sector to back. While he takes responsibility for the turnout of the LUNA token per Hashe’s investments, Kim reiterated that the VC does not give investment advice seeing most projects it backs are in their experimental phases.
After millions of new retail traders entered the crypto market in 2021, 2022 started with a downturn, auguring fears of a bear market. With concurrent inflation fears and rising interest rates, trading activity has slowed from previous record levels, as traders err on the side of caution with their investment strategies.
Then, in May, the algorithmic stablecoin Terra de-pegged from the US dollar, and collapsed, along with its linked token LUNA. As a result, many people had their investments wiped out in the space of a few hours, while a widespread market panic took hold.
The events surrounding the Terra collapse highlight why trading platforms need to provide clarity and education for their users. With tighter regulations looming, demonstrating responsibility and a commitment to consumer protection is vital if trading platforms are to thrive.
Spotting red flags
Since Terra’s dramatic downfall, a number of reports have surfaced, which had previously pointed to some of the alleged flaws in the stablecoin’s algorithmic model, as well as the unsustainable yield of almost 20% promised through Terra’s Anchor protocol. Unlike other collateralised stablecoins, Terra’s model depended entirely on algorithms, which shifted most of its volatility onto the LUNA token while keeping Terra, or UST pegged to the US dollar.
This incentive-based mechanism, alongside the impressive staking returns offered by its associated Anchor protocol, was undoubtedly an innovative and attractive proposition for many investors. Nonetheless, the algorithmic model was risky and can, as was the case in May, be destabilised by a large run on the LUNA token, which deprived the system of liquidity and caused UST to lose its peg.
The Terra crash demonstrated the inherent risks in flawed fundamentals all too well. The people who suffered the most were regular retail investors who assumed the stablecoin to be a reliable store of value. While trading platforms cannot offer investment recommendations, a greater emphasis on clarity and transparency may have led to retail investors treading more carefully when storing their savings in certain digital assets.
If, for example, online exchanges can provide their users with clear explanations of how stablecoins work and differ, investors can confidently make decisions based on facts rather than taking word-of-mouth recommendations at face value.
Regulation moves closer
As part of wider calls for regulation of the crypto market, stablecoins have been on the radar of legislators since the first iterations were launched over five years ago. The collapse of UST accelerated this process considerably.
This urgency to protect consumers through regulatory frameworks is gaining traction across the world, with the UK government proposing to amend existing rules to safeguard financial stability. This comes not long after the UK treasury’s commitment to making Britain a “crypto hub” and shows that cryptocurrencies have entered the financial mainstream to a certain extent.
Regulation may not always be supportive, however. Calls to bring stablecoins under regulation can easily morph into allowing tokens to be issued solely by regulated banks – a move which could essentially remove the decentralised element of stablecoins and turn them into something akin to central bank digital currencies (CBDCs).
Once again, trading platforms have a role to play. By informing traders about high-risk investments in advance, they can align themselves with the regulators who are seeking to protect consumers without stifling innovation. By proactively demonstrating transparency and accountability, online exchanges might avoid such heavy scrutiny by lawmakers.
Empowering retail traders
Ultimately, providing as much information as possible to investors and traders means empowering them to take informed decisions. This way, consumers can exercise financial freedom confidently and benefit from the unprecedented access to assets granted by blockchain technology and cryptocurrencies.
How does this look in practice? Educational tools like tutorial libraries, safety mechanisms and effective news aggregators can transform online exchanges into transparent and accountable platforms which truly work for the retail trader.
The foundational power of retail trading is providing access to wealth which was previously restricted to insiders and institutions. This can free up capital and new opportunities to everyone, everywhere. Only by providing education can individuals truly be empowered to take part in the market without taking on inadvertent risk.
South Korean regulators have reportedly raided serval exchanges and entities that are connected with Terraform Labs as another effort in the ongoing investigation of the case.
According to a report from local news channels News1 Korea, officers of the Joint Financial and Securities Crime Investigation Team of the Seoul Southern District Prosecutors Office acted on a ‘Search and Seizure’ warrant on Wednesday to raid the office locations of the major exchanges in the country.
Some affected exchanges include Upbit, Bithumb, Coinone, Korbit, and Copax. According to the News1 report, the raid led to some pieces of evidence pointing to the collapse of UST algorithmic stablecoin and Terra’s LUNA, which is now renamed Luna Classic (LUNC). The uncovered evidence from these exchanges outlines how the drop in the Terraform Labs-linked tokens affected as many as 200,000 retail investors.
The event that bedevilled Terra at the time fueled a profound upset in the broader cryptocurrency world and ushered in a ‘Crypto Winter’ whose ripple effect has sent many businesses packing.
Many companies had exposure to Terraform Labs, including Three Arrows Capital (3AC). The crypto hedge fund could not survive the collapse of the LUNA and UST coins and today is undergoing liquidation as a British Virgin Court ordered with Teneo Restructuring overseeing.
From the Vauld Group to Celsius Network and even BlockFi, the inherent sting of the Terraform Labs collapse has been encompassing. Retail investors in South Korea had long appointed local law firm L.K.B. & Partners to help them seek redress. While it is unclear how exactly these investors will be able to recover their funds back, the Korean government is highly committed to its investigations into Terraform Labs and the Luna Foundation Guard.
In a move that seems like it is staving off the related strain, Ravi Menon, the Managing Director of the Monetary Authority of Singapore (MAS), has clarified that the Do Kwon-linked firms are neither registered nor licensed to operate in Singapore.
Do Kwon, the once cherished developer who gained prominence with the rise of Terra Blockchain protocol is now being dragged on Twitter for a series of alleged financial misconducts that possibly led to the collapse of UST and LUNA.
According to a Twitter user, FatMan Terra, Do Kwon allegedly used the Abracadabra protocol, DegenBox, to siphon as much as $2.7 billion from the UST and Terra coffers months leading to the eventual collapse of the Layer-1 protocol. According to FatMan, a Terra insider with affiliations to the Terra Research Forum, Kwon exploited the borrowing design of Degenbox and the promise of its high APYs to generate enough liquidity with which he was able to move out the said funds.
Earlier, it was discovered based on the testimonies from unnamed employees of Terraform Labs that Do Kwon cashes out as much as $80 million monthly, typically deployed to dozens of other wallets. The claim from FatMan is a corroboration of these earlier facts, but Do Kwon is denying them all.
Taking to his official Twitter handle, Kwon criticized the allegations levied against him, noting that they all are false. He said his critics pointed out that he sold off all of his holdings before the crash and that he still retains the tokens from the latest LUNA airdrop. He noted that these two claims are highly conflicting.
“To reiterate, for the last two years, the only thing I’ve earned is a nominal cash salary from TFL, and deferred taking most of my founder’s tokens,” in part because he ‘didn’t need it’ and that he ‘didn’t want to cause unnecessary finger-pointing of ‘he has too much’,” he said, debunking the claims of any forms of financial impropriety.
Do Kwon involves a number of legal troubles from both South Korea and US regulators, and amidst all these, he said people should “Please say things that are proven and true..”
The collapse of Terra Classic (LUNC) – the name of the old Terra chain and token – may come as a shock to many, but quite a number of venture capital firms or backers cashed out before the protocol was attacked.
As reported by CNBC, Pantera Capital, the largest crypto hedge fund in the world by Assets Under Management (AUM), said it made over 100x from its initial investment of $1.7 million in the project. This implied that the firm cashed out as much as $170 million on LUNA holdings. The firm’s co-chief Investment Officer, Joey Krug, said as much as 87% of its investments were cashed out between January 2021 and April 2022.
Noting that the sell-off was the fund’s way of de-risking its position and rebalancing, he shared that Pantera Capital also sold another 8% in May when the UST stablecoin had broken its peg but notably got stuck with 5% of its total holdings.
“For the large portion which we sold over 2021 and part of 2022, it was a really simple risk management reason,” said Krug, adding that “It kept becoming a larger and larger part of the fund, and so we had to de-risk it since you can’t really run a liquid hedge fund with one position being a super large portion of the fund.”
Besides Pantera Capital, Hack VC said it exited its position in the project back in December last year, while CMCC Global, one of the investors who backed Terraform Labs at the seed stage, said it exited its position in March.
While the hoard of venture capital firms typically has their personal investment strategies, the sell-offs from the big investors have often been touted as one of the reasons for the imminent crash of the project. Irrespective of how factual this is, investors like Pantera Capital will still benefit immensely from the Terra 2.0, which airdropped new LUNA tokens to holders of the old coin before the attack.
LUNA 2.0 has been on a rocky start based on a sharp price decline after Terra 2.0 successfully went live on May 28.
The price hit highs of $18.87 but later nosedived to lows of $5, according to CoinGecko. In the first 30 minutes of trading, LUNA 2.0 shot up to $30 from $0.30 on crypto exchange ByBit, but this peak was short-lived because it nosedived to $5.30 in a span of three hours.
With a total supply of 1 billion coins, the price was hovering around $6.28 during intraday trading, according to CoinGecko.
Terra 2.0 came to the limelight as a revival plan of the troubled Terra ecosystem after its native tokens LUNA and UST crashed.
Mid-last week, the Terra community passed the Terra 2.0 proposal because it was deemed the genesis of a new blockchain that could see the continuation of the ecosystem despite the drawdowns experienced.
How will trust play out?
With various crypto exchanges like Kraken, KuCoin, Nexo, Bitrue, ByBit, and Bitfinex already listing the LUNA 2.0 token, it remains to be seen how trust plays out in the network despite a rocky start.
Market analyst under the pseudonym Tajo Crypto explained:
“The people who have actually made money from LUNA 2.0 are those that received airdrops and sold. But I won’t call it gains because the majority of the supply is still vested. Then lots of exchanges have made lots of money from trading fees. LUNA 2.0 will be profitable if it succeeds.”
Therefore, Tajo Crypto noted that the selling pressure experienced in LUNA 2.0 was driven by the urge of some investors to recover losses made when the ecosystem crashed.
With the old chain renamed Terra Classic (LUNC) and the new one Terra (LUNA), Tajo Crypto believes a wait-and-see approach is playing out. The analyst added:
“Some people are holding the Luna Airdrop hoping that Terra 2.0 will go to the moon. While some people had to sell to recover some of their losses from Luna classic. There are also those not sure of what to do yet. Whatever you decide, you might be right. No one knows tomorrow.”
Therefore, time will tell how the Terra network progresses, given that the proposal to burn 1.3 billion UST tokens was recently approved.
