The Singapore police have launched an investigation into Terraform Labs and its founder, Do Hyeong Kwon, following events that led to investors losing billions. Terraform Labs is the creator of the cryptocurrency Terra Luna Classic (LUNC) and stablecoin Terra USD (UST), which suffered a collapse in May 2021. Kwon reportedly fled Singapore soon after the collapse.
The US Securities and Exchange Commission (SEC) had previously sued Kwon and Terraform Labs, accusing them of fraud and selling unregistered securities that cost investors over $40 billion. The SEC also alleged that Kwon withdrew around 10,000 bitcoins from the platform before laundering over $100 million.
The problems for Terraform Labs began when its stablecoin, TerraClassicUSD, lost its intended peg to the US dollar. The stablecoin’s value of $1 was to be maintained through a combination of algorithms and incentives via LUNA. However, the SEC claimed that Kwon falsely represented the peg and manipulated the stablecoin’s price. The commission cited an instance in 2021 when UST dropped below $1, and Kwon sought a third party to buy large amounts of the stablecoin to restore the peg.
Industry Coping with Domino Effect Following Terra Luna Collapse
Terra Luna’s collapse had a domino effect, wiping out many companies, including Three Arrows Capital, Voyager Digital, and BlockFi. Two months after the collapse, South Korean law enforcement raided Terraform Labs’ officers in Seoul, alleging that Kwon engaged in wash trading and other illegal activities. Kwon’s whereabouts remain unknown, and he is an internationally wanted person. It is unclear whether algorithms controlled UST, and the industry is still struggling to cope with Terra Luna’s collapse.