Tag: luna

TerraUSD Founder Do Kwon Indicted in US Following Montenegro Arrest

Do Kwon, the cryptocurrency entrepreneur behind two digital currencies that lost an estimated $40 billion (nearly Rs. 3,28,500 crore) or more last year, has been charged with fraud by US prosecutors.

An eight-count indictment against Kwon was made public in the US District Court in Manhattan, several hours after news of his arrest earlier Thursday in Montenegro.

Lawyers for Kwon in the United States did not immediately respond to requests for comment after business hours.

Thursday’s indictment charges Kwon, a South Korean national who co-founded Terraform Labs and developed the TerraUSD and Luna currencies, with two counts each of securities fraud, wire fraud, commodities fraud and conspiracy.

The criminal case follows related US Securities and Exchange Commission civil charges against Kwon and Terraform last month.

Kwon had been a fugitive for several months, and South Korean authorities issued an arrest warrant for him last September.

South Korean police said on Friday that the identity of the suspect arrested in Montenegro had been confirmed as Kwon after his fingerprints matched the information held by the country’s National Police Agency (KNPA).

“This has been shared with the Seoul Southern District Prosecutors’ Office and Interpol in Montenegro,” one official at the KNPA said.

Prosecutors will work with other institutions to carry out a swift repatriation, a spokesperson for the country’s prosecution service said.

Montenegro’s interior ministry said police detained a person thought to be Kwon and a second suspect, who were trying to board a flight to Dubai at Podgorica airport.

Police found forged passports of Costa Rica and Belgium during the encounter, the ministry said.

“The person is suspected of being one of the most wanted fugitives, South Korean national Do Kwon, a co-founder and CEO of the Singapore-based Terraform Labs,” Interior Minister Filip Adzic wrote on Twitter.

“The former cryptocurrency king who is behind losses of over $40 billion, has been apprehended at the Podgorica airport with forged documents,” Adzic added.

TerraUSD was a so-called “stablecoin” designed to maintain a constant $1 price, while Luna’s value fluctuated.

But authorities have said TerraUSD and Luna were paired, such that a decline in one could take down the other.

They also said Kwon misrepresented the stability of TerraUSD, once among the top 10 cryptocurrencies by market value.

Both currencies crashed last May, with TerraUSD’s price sinking to less than one penny.

In its civil case, the SEC accused Kwon and Terraform of “orchestrating a multi-billion dollar crypto asset securities fraud.

“We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors,” SEC Chair Gary Gensler said in a statement at the time.

© Thomson Reuters 2023

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Terraform Founder Do Kwon Charged for Forging Documents by Montenegrin Police

Montenegrin police on Friday formally charged Do Kwon, the cryptocurrency entrepreneur behind two digital currencies that lost an estimated $40 billion (nearly Rs. 3,29,500 crore) or more last year, for forging official documents after arresting him on Podgorica airport.

Do Kwon, a South Korean national, and a second suspect have been held on Thursday while trying to board a flight to Dubai at Podgorica airport.

Police said in a statement they had found forged Costa Rican passports and a separate set of Belgian passports in their luggage during the encounter.

The two suspects have also been charged before a Podgorica court with forging of official documents, it said.

“Pending completion of the (court) proceedings they will be taken to an investigative judge…for further actions according to an international (arrest) warrant,” it said.

It also said that an international warrant had been issued against the two “to ensure their presence… before the Southern District Court in Seoul on suspicion of committing several criminal acts in the field of economy.”

Several hours after Kwon was detained in Podgorica, the US District Court in Manhattan made public an eight-count indictment against him.

Lawyers for Kwon in the United States did not immediately respond to requests for comment after business hours.

Thursday’s indictment charges Kwon, who co-founded Terraform Labs and developed the TerraUSD and Luna currencies, with two counts each of securities fraud, wire fraud, commodities fraud and conspiracy.

Both currencies crashed last May, with TerraUSD’s price sinking to less than one penny.

The criminal case follows related US Securities and Exchange Commission civil charges against Kwon and Terraform last month.

Kwon had been a fugitive for several months. South Korean authorities issued an arrest warrant for him last September.

South Korean police said on Friday the identity of the suspect arrested in Montenegro had been confirmed as Kwon after his fingerprints matched the information held by the country’s National Police Agency (KNPA).

© Thomson Reuters 2023

 

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RBI Suggests Common Approach to Crypto Assets to Avoid Potential Financial Risks

To address potential financial stability risks and protect investors, it is important to arrive at a common approach to crypto assets, the Financial Stability Report released by RBI said on Thursday.

In this context, various options are being considered internationally, it said.

One option is to apply the same-risk-same-regulatory-outcome principle and subject them to the same regulation applicable to traditional financial intermediaries and exchanges, the report said.

Another option is to prohibit crypto assets, since their real life use cases are next to negligible and the challenge is that different countries have different legal systems and individual rights vis-à-vis state powers, it noted.

A third option is to let it implode and make it systemically irrelevant as the underlying instability and riskiness will ultimately prevent the sector from growing, it said.

The third option, however, is fraught with risks as the sector may become more interconnected with mainstream finance and divert financing away from traditional finance with broader effect on the real economy, the report said.

Regulating new technology and business models after they have grown to a systemic level is challenging, it pointed out.

To promote responsible innovation and to mitigate financial stability risks in crypto ecosystem, the report said it is vital for policymakers to design an appropriate policy approach.

In this context, under India’s G20 presidency, one of the priorities is to develop a framework for global regulation, including the possibility of prohibition, of unbacked crypto assets, stablecoins and decentralised finance (DeFi), it said.

The collapse and bankruptcy of the crypto exchange FTX and subsequent sell-off in the crypto assets market have highlighted the inherent vulnerabilities in the crypto ecosystem.

Recently, Binance, the largest crypto exchange, also prohibited withdrawals of stablecoins on its platform. The implosion of FTX was preceded by failure of TerraUSD/Luna, an algorithmic stablecoin, a run on Celsius, a crypto lender, and bankruptcy of Three Arrows Capital, a cryptocurrency hedge fund.

Observing that the turmoil has provided several insights, it said crypto assets are highly volatile.

The price of Bitcoin has tumbled by 74 percent (as on December 14, 2022) from its peak in November 2021. Other crypto assets have also experienced similar falls in prices and heightened volatility.

In addition, crypto assets exhibit high correlations with equities, it noted.

Furthermore, it said, contrary to claims that they are an alternative source of value due to inflation hedging benefits, crypto assets’ value has fallen even as inflation rose.

Second, the report said, the collapse of TerraUSD/Luna is a reminder of how so-called stablecoins that promise to maintain a stable value relative to fiat currency are subject to classic confidence runs.

Finally, it said, the failure of FTX and Celsius reveals that crypto exchanges and trading platforms were carrying out different functions such as lending, brokerage, clearing and settlement that have different risks without appropriate governance structures.

This exposed them to credit, market and liquidity risks disproportionate to what was necessary to discharge their essential functions, it said, adding leverage is a constant theme across the crypto ecosystem, making failures rapid and losses huge and sudden.

 

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Vitalik Buterin Shares His Take on Algorithmic Stablecoins and Their Future

Ethereum founder and crypto enthusiast Vitalik Buterin recently shared his two cents on algorithmic stablecoins and their future adding that they should be scrutinised on the basis of how they fare under extreme market conditions, and whether they can safely wind down when hype falls away. Despite the recent collapse of UST and LUNA, which knocked UST from its $1 (roughly Rs. 77) peg and wiped billions from the market, Buterin argued in an essay that automated stablecoins can make sense while criticising exorbitant returns offered by those “doomed to collapse eventually.”

Buterin points out in his thought piece that although the UST debacle over the past month has led traders to form an opinion that algorithmic stablecoins are fundamentally flawed, some algorithmic stablecoin models are feasible and sets out his thinking as to why.

Citing an example, Buterin pointed to MakerDAO’s stable token DAI and Reflexer’s RAI, both of which have survived extreme market conditions as successful automated stablecoins.

Algorithmic stablecoins are inherently supported by another crypto and use baked-in formulas to regulate the price. This is different from, for example, USDC, which is a fiat-backed stablecoin supported by real dollars in the bank. The big challenge for all dollar-pegged stablecoins is finding ways to maintain their peg.

As per Buterin’s blog post, the first question for investors to ask about a stablecoin is “can the stablecoin safely wind down to zero users?” For Buterin, the event of market activity for a stablecoin dropping to zero should not be a fatal blow for investors. Instead, users should be able to get a fair value for their assets.

Buterin notes that this was not the case with Terra as the network relies on LUNA, which he calls a “volcoin” or volume coin to maintain the asset’s peg. Buterin painted Terra’s tragedy as caused by hyperinflation from printing lots of volcoins.

“First, the volcoin price drops,” writes Buterin. “Then, the stablecoin starts to shake. The system attempts to shore up stablecoin demand by issuing more volcoins. With confidence in the system low, there are a few buyers, so the volcoin price rapidly falls. Finally, once the volcoin price is near-zero, the stablecoin to collapses.”

Another issue highlighted by Buterin was that Terra’s Anchor protocol promised a 20 percent annual percentage yield (APY) on UST. Some investors converted their savings into UST to earn the high APY without fully understanding the risks involved. This is one reason Buterin welcomes the greater level of scrutiny on decentralised finance (DeFi).

The well-known developer says when stablecoins attempt to generate these types of returns, they can instead turn into ponzi schemes. “Obviously, there is no genuine investment that can get anywhere close to 20 percent returns per year,” he says. “In general, the crypto space needs to move away from the attitude that it’s okay to achieve safety by relying on endless growth.”

Buterin concludes the essay by stating that even if a stablecoin passes the said parameters test, there might still be underlying issues like bugs, and governance issues that threaten the survival of the project. However, “steady-state and extreme-case soundness should always be one of the things that we check for,” he concludes.

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RBI Governor Shaktikanta Das Issues Crypto Warning After Terra’s LUNA, UST Collapse

Shaktikanta Das, the governor of the Reserve Bank of India has stated in an interview that the country’s central bank has rightly been cautioning against cryptocurrencies, following the collapse of Terra’s UST and LUNA. On May 15, RBI officials warned that with most cryptocurrencies denominated by the US dollar, it could lead to the dollarisation of the country’s economy. The officials stressed that dollarisation is against the country’s sovereign interest while maintaining that digital assets pose a threat to India’s financial stability.

Das told CNBC TV18 in an interview on Monday that if crypto had been regulated in India leading to the recent disaster revolving around the Terra ecosystem, investors would have questioned the effectiveness of the law. While the Indian government has often said that it will not shut out crypto completely, the central bank has called for a ban on multiple occasions.

“This [crypto] is something whose underlying [value] is nothing. There are big questions on how do you regulate it. Our position remains very clear, it will seriously undermine the monetary, financial, and macroeconomic stability of India,” the governor said.

The RBI governor added that the country’s central bank and government are “in sync” on their stance on crypto regulation because the government is “equally concerned.”

“We have conveyed our position to the government and they will take a considered call,” he said.

Additionally, a question was posed to Das regarding the assertion that was made by Brian Armstrong, the CEO of Coinbase. Armstrong claimed that Coinbase India disabled payments by the Unified Payments Interface (UPI) just a few days after launch due to “informal pressure” from the RBI.

The governor responded he did not want to comment on the hypothetical remarks offered by those from the outside.

As things stand, the Indian crypto sector is completely unregulated. The Indian Finance Ministry is conducting meetings with different financial entities such as the International Monetary Fund, World Bank, the Reserve Bank of India, as well as the Securities and Exchange Board of India (SEBI).

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Terra’s Internal Legal Team Resigns After LUNA, UST Debacle

The in-house legal counsel at Terraform Labs, the blockchain startup behind the UST stablecoin and LUNA governance token has silently resigned from the company. Terraform Lab’s general lawyer Marc Goldich, chief litigation, and regulatory counsel Noah Axler, and chief corporate counsel Lawrence Florio all left the blockchain business in May 2022, according to their LinkedIn profiles. The move arrives in the wake of the collapse of two digital assets connected to the startup as the UST stablecoin de-pegged from its projected $1 (roughly Rs. 78) mark.

Axler and Florio joined Terraform Labs in January 2022, while Goldich started in August 2021. “Terraform Labs has had a challenging week, and a small number of staff members have resigned recently,” a company spokesperson said talking to CoinDesk.

“The vast majority of team members are still dedicated to fulfilling the project’s objectives. Terra is more than UST, with a strong community and a well-defined rebuilding strategy. The Terra spokesman stated, “Our current focus is on implementing our plan to restore the Terra ecosystem.”

The mishap that befell the Terra ecosystem is unprecedented, and one of the rarest seen in the history of the blockchain ecosystem. This is so because Terraform Labs tried to pioneer a new payment technology in the form of algorithmic stablecoin, one that differs markedly from its peers like Tether (USDT), which has its reserves domiciled in US dollars.

The frailty of the algorithmic stablecoin protocol was reflected in how easily it got attacked a little more than a week ago, and recovery was hard to make despite the several attempts to re-peg it back to $1 (roughly Rs. 78). In fact, the Luna Foundation Guard (LFG), a not-for-profit organisation tasked with developing the reserve for the UST stablecoin, unveiled earlier this week how it has depleted its Bitcoin and stablecoin reserve in a bid to restore the UST’s downfall.

In fact, the resignation of the Terraform Labs legal team could push the company to turn to outside counsel for legal affairs.

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