South Korean prosecutors raided the home of Terraform Labs co-founder Daniel Shin, deepening a probe into allegations of illegal activity behind the collapsed stablecoin TerraUSD.
A series of raids on crypto-exchanges and offices on Wednesday also included Shin’s home and his payment app Chai Corp., the Seoul Southern District Prosecutors Office said via a text message, confirming an earlier report from MBC News. Police also visited two affiliated firms, a spokesperson for the prosecutors said, declining to provide further detail in an ongoing investigation.
Policymakers around the world have zeroed in on stablecoins given the turmoil in the crypto markets, most notably the collapse of the popular TerraUSD token in May. That spurred a debate about whether blowups of crypto experiments could pose a risk to the wider financial system, along with calls for stronger regulation.
In South Korea, prosecutors conducted raids this week in 15 areas, including seven local exchanges such as Upbit, Bithumb and Gopax. The action took place about a month after authorities banned current and former employees of Terraform Labs from leaving the country. Prosecutors summoned a former official at a unit of Terraform Labs for questioning, KBS TV report has reported.
Prosecutors are also looking into whether the company’s other co-founder, Do Kwon, evaded taxes by moving profits from cryptocurrency transactions to an offshore account, local news agency Yonhap has reported.
Shin and Kwon, who is believed to be in Singapore, didn’t immediately respond to requests for comment.
Payment Services
The two crypto entrepreneurs started Terraform Labs together in 2018 and initially split ownership 50-50, Chai said in a statement to Bloomberg in May. Their idea was to use blockchain technology for payment services. But since South Korea lacked a regulatory regime for such offerings, Shin and Kwon decided to part ways, according to Chai.
In March 2020, Shin stepped down from his position as chief executive officer of Terraform Labs and reduced his stake in the company to focus on building Chai. Kwon took control of Terraform Labs, which launched the Terra blockchain to support decentralized-finance applications, Chai said.
TerraUSD, or UST, and its sister Luna token became a key part of Kwon’s wider project, backing applications like the Anchor lending protocol. A key premise underpinning the wider Terra ecosystem was UST’s peg to the US dollar, supposedly safeguarded by a complex mix of algorithms and trader incentives involving Luna. It was a different model to other stablecoins like USDC, which are backed by cash and other liquid assets.
UST crumbled from its peg in early May when the mechanism failed to protect it from a sharp selloff, rendering Luna nearly worthless and wiping out some $40 billion in combined market value. The UST crash, in turn, exacerbated the rout in digital assets.
Since UST imploded, Shin has put up a notice on the Chai app distancing himself from Kwon and TerraLabs.
Some Luna investors filed a complaint with South Korean prosecutors in May, alleging Kwon and his company had committed fraud and engaged in illicit fundraising.
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