- At least seven cryptocurrency exchanges were raided by South Korean officials today in apparent connection with ongoing investigations into Terraform Labs.
- Among other legal troubles, the company and its founders are said to be under investigation for running an alleged Ponzi scheme.
- Terra’s collapse was a watershed moment in the history of the industry, resulting in billions lost and triggering contagion throughout the market.
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Authorities in South Korea have begun executing raids on cryptocurrency exchanges as part of their ongoing investigations into the collapse of Terraform Labs’ signature Terra protocol earlier this year.
Prosecutors in South Korea are turning up the heat on Terraform Labs.
According to reporting from Yonhap News Agency, South Korean authorities have raided at least seven cryptocurrency exchanges as part of ongoing investigations into Terraform Labs and the collapse of its UST and LUNA tokens in May.
Investigators from the Seoul Southern District Prosecutors’ office seized materials, including transaction records, from several exchanges beginning at about 5:30 P.M. Korea Standard Time today. Upbit, Bithumb, and Coinone were among the exchanges targeted for the raids.
Yonhap also reports that the investigators conducted raids in at least eight other locations, including offices and homes of people connected to the case.
Terraform Labs and its co-founders, Do Kwon and Daniel Shin, are the targets of legal action from several angles. Among these are lawsuits that claim Kwon and company defrauded investors, as well as reports that prosecutors are investigating the firm for running an apparent Ponzi scheme. In June, authorities seized Kwon’s tax records as part of an investigation into potential tax fraud. It has also been reported that U.S. and South Korean officials met last month to “share information” regarding the Terra case.
It is unclear whether today’s actions are connected to any or all of those cases.
Fall From Grace
Terraform Labs and its signature protocol, Terra, collapsed suddenly and unexpectedly in May of this year after its flagship stablecoin, TerraUSD (UST), depegged from its target parity of $1.
The Terra protocol relied on a complex method of balancing UST supply by inversely correlating it to the supply of its counterpart token, LUNA, which served as the protocol’s governance token and primary speculative asset. However, this mechanism failed when LUNA rapidly descended in price in the wake of UST’s depegging and the token ecosystem entered a death spiral that rapidly resulted in the loss of billions of dollars.
Though Terra enjoyed a brief run as one of the most popular DeFi attractions in the space, its collapse earlier this year is already remembered as one of the most stunning and spectacular meltdowns in the history of the industry. Today’s news indicates that the legal fallout from the dramatic downturn is far from over.
Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and several other cryptocurrencies.