Korean authorities issue warrant for Terra founder’s arrest

Terra LUNA sinks 34% after latest development in Terraform Labs scandal

Handcuffs                                 
Individual at the centre of $41bn collapse has pledged to cooperate with authorities - Photo:Shutterstock
                                

South Korean authorities have issued a warrant for the arrest of Do Kwon, the CEO and co-founder of TerraForm Labs. 

A spokesperson for the South Korean prosecutors said on Wednesday: “An arrest warrant has been issued for a total of six people, including Do Kwon, who are currently residing in Singapore.”

The warrant is the latest setback for the company that developed the algorithmic stablecoin Terra USD and the cryptocurrency Terra LUNA, both of which collapsed earlier this year as the “Crypto Winter” set in. 

LUNA, now branded as Terra Classic, had previously enjoyed a stratospheric rise to prominence. Between June 1 2021 and April 5 2022, the cryptocurrency’s market capitalisation jumped from $2.5bn (£2.1bn) to $40.8bn. 

The momentum of ten months was promptly undone in the space of five weeks, however, during which LUNA’s market capitalisation feel from almost $41bn to $315m. 

The dramatic slump was triggered by the TerraUSD breaking its 1:1 peg to the US dollar. Instead of maintaining parity with the global reserve currency, the stablecoin became unstable and plunged from $1 to $0.00654 in the space of a month. 

The depegging was attributed primarily to the fact that, unlike stablecoins backed by assets, TerraUSD’s value was determined by a series of complex algorithmic processes. 

A number of prominent cryptocurrency firms and projects collapsed in the wake of the scandal, most prominently, Celsius and Voyager Digital. 

Three Arrows Capital (3AC) a crypto-focused hedge fund which at one point in the spring had $10bn in assets under management, collapsed into insolvency. 

Multiple legal challenges

Do Kwon immediately came under the intense attention of the world’s media and authorities after the collapse. 

The 30-year old, who previously upheld a bombastic and sometimes combative social media presence, found himself subpoenaed by the US Securities and Exchange Commission (SEC), investigated by Korea’s National Tax Service and challenged by a slew of class action lawsuits. 

The hacktivist group Anonymous even promised to make sure that Kwon would be “brought to justice as soon as possible.”

In July, South Korean prosecutors raided the home of Daniel Shin, Kwon’s Terraform Labs co-founder. 

In a rare post-crash interview, Kwon said last month that he would cooperate with the authorities, adding: “In terms of dealing with due process, it’s not a question of what you are prepared to face, it’s a question of how you are going to face them. So what we’re going to do is, we’re just going to put out the facts as we know them.”

By 13:30 on Wednesday 14 September, Terra Classic traded down by 18% at $0.0002975 and Terra (LUNA) stood 34.7% lower at $2.87.

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