The collapse of Terra is arguably the biggest failure in the crypto industry’s history. Kwon has already started his massive revival plan to rescue the Terra ecosystem. Still, those who worked with him on “LUNA Classic,” which has now been deemed worthless, are reportedly being investigated.
Terra staff reportedly probed by South Korean prosecutors
The South Korean government is still investigating Terraform Labs, the company that created the Terra Network and Luna (LUNC) coins and Terra USD (UST) tokens. According to local news, all employees at Terraform Lab have been summoned by authorities for a comprehensive investigation of the failure of UST and LUNC.
According to reports, the Seoul Southern District Prosecutors Office’s joint financial and securities crime investigation team is conducting the inquiry. The authorities are investigating the case in order to look for signs of intentional price manipulation and whether the tokens went through proper listing procedures.
According to sources, the investigators also claimed that the mechanism of the tokens was faulty since UST is not linked to a stable collateral or profit model. Authorities allegedly added that there is no alternative for the entity but to collapse at some time due to interest payments and value swings.
According to several reports, an unnamed employee who was involved in the failed blockchain‘s inception in 2019 has already testified. According to a source, the employee claimed that they had warned the crypto firm’s founder and CEO about an impending collapse after a UST pilot model allegedly failed.
If you pay interest of several tens of percent to investors without a stable collateral or profit model, people may flock to you at the beginning, but, at a certain point in time, it has no choice but to collapse because it cannot handle interest payments and fluctuations in value.
The authorities of South Korea are now investigating if Kwon was aware of the flaws, and they’re looking into possible internal price manipulation. The prosecution is also looking into whether domestic cryptocurrency exchanges followed proper listing review procedures.
Several investors have filed claims with regulatory authorities against Do Kwon and Daniel Shin, the two entrepreneurs who founded Terraform labs. The number of people affected increased to 76, and the amount of money lost rose to 6.7 billion won.
The most recent news comes almost two weeks after Kwon got scheduled to attend a hearing in front of the country’s legislature. It was Yun Chang-Hyun, a representative from the ruling People Power Party, who had requested a hearing on LUNA and UST’s failures and the role cryptocurrency exchanges played in the aftermath of the entire fiasco.
At the general shareholders meeting on April 30, Kwon announced that he had dissolved the company’s Busan headquarters and Seoul branch. The closure came one week before the fallout of the two tokens.
Dark clouds surround Terra with no apparent light
In mid-May, investors who purchased Luna tokens through a fund run by Terraform Labs filed a class-action lawsuit against Do Kwon and co-founder Shin Hyun-Seun, demanding a log of user accounts, marketing materials, and UST-related communications. After LUNC collapsed 99 percent, investors lost up to $44 million in deposited cash due to UST’s plummeting 1:1 peg value to the USD.
According to some sources, Terraform Labs disbanded its South Korean branch just days before the Luna and UST collapsed, with some claiming that Kwon shut down the local division to escape taxes. The national tax agency of South Korea eventually levied a $78 million fine against Terraform Labs and its co-founder for tax evasion.
Following the demise of its blockchain, on May 28, Terraform Labs relaunched a new chain, Terra 2.0, to resuscitate the damaged ecosystem. The Terra team is working closely with major crypto exchanges Binance and FTX to assist users who were affected by the fork. The new LUNA token crashed 70% after it went live, with many traders selling off their Terra 2.0 holdings.
Whether or not these claims are proven valid, the Terra ecosystem finds itself in a critical situation. Those in command are implementing various methods to get themselves back on track, but it doesn’t appear to be simple.
The path forward for the company is uncertain, and the future of the LUNA token looks bleak. South Korean cryptocurrency exchanges are hesitant to list the new LUNA coin, adding to its difficulties. Investors remain unconvinced that Terra 2.0 is the start of a new blockchain. However, as investigations continue, Terra will have a difficult time finding its way back to the top.
For some time, Terra’s position has fueled rumors of a recession. Global investors are concerned about the more challenging times ahead. Elon Musk, on the other hand, is unconcerned. Elon Musk believes that a recession is on its way, and he thinks it will be beneficial.
In Musk’s eyes, those who followed government regulations and stayed at home during the COVID crisis will have to work even harder now that the economy is tougher, as long as their employer isn’t one of the firms that fail.