Terra

Terra co-founder Daniel Shin’s arrest denied by court, citing low flight risk

Shin currently faces multiple fraud charges, specifically concerning allegedly hiding risks associated with investing in the in-house tokens by Terraform Labs.

A local court in South Korea denied the prosecutor’s request to issue an arrest warrant for Terraform Labs co-founder Shin Hyun-Seong, also known as Daniel Shin. This was the second attempt made by South Korean authorities to reign in Shin following the recent arrest of Do Kwon — Terra’s other co-founder.

On March 23, Kwon was arrested at Podgorica airport in Montenegro while attempting to use fake documents to fly abroad. The Seoul Southern District Prosecutors Office took advantage of this situation and, on March 27, requested an arrest warrant for Shin, citing his involvement in cashing in illicit profits from Terra (LUNA) and TerraUSD (UST) sales.

However, the Seoul Southern District Court denied the request while citing unconfirmed allegations and the unlikeliness of Shin being a flight risk or destroying evidence, according to local media Yonhap.

Shin currently faces multiple fraud charges, specifically in relation to allegedly hiding risks associated with investing in the in-house tokens by Terraform Labs.

Related: South Korea to examine crypto staking services following the Kraken case

Following Kwon’s arrest in Montenegro, authorities from both the United States and South Korea have tried to extradite the entrepreneur.

As Cointelegraph reported, Montenegrin Justice Minister Marko Kovač said the U.S. made diplomatic efforts to ask for Kwon to be handed over, while South Korean officials have requested extradition.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime

“In the case when we receive several extradition requests, I would like to say that determining to which state they will be extradited is based on several factors like the severity of the committed criminal offense, the location and time when the criminal offense has been committed, the order in which we have received the request for extradition and several other factors,” said Kovač through an interpreter.

Terra’s branding at MLB opener draws attention from spectators

An attendee shared an image of a Terra banner with the slogan “a decentralized economy needs decentralized money,” prominently displayed during Major League Baseball’s opening day.

As baseball enthusiasts flocked to Nationals Park in Washington D.C for the opening day of the Major League Baseball (MLB) season, the appearance of Terra — the crypto ecosystem that collapsed in May 2022 — didn’t go unnoticed by attendees.

A Twitter user who attended The Washington Nationals’ home opener against the Atlanta Braves on March 30 shared an image of Terra prominently displayed on a banner with the slogan, “a decentralized economy needs decentralized money.”

“Sounds like a solid company. Will check out,” the user commented on the prominent placement of Terra at the stadium.

Another Twitter user said the Terra Club — a VIP pre-game venue experience — is behind the home plate at Nationals Park, and “a big sign in left center” promoting Terra.

The partnership between Terra and The Washington Nationals’ came into effect in February 2022, just months before Terra’s collapse.

The Terra community committed $38.2 million in TerraUSD (UST) over five years to secure the deal.

Related: ‘Wild’ — SEC going after Terra sparks responses from crypto lawyers

Terra’s founder, Do Kwon, proposed the partnership through the community’s governance platform. Kwon is currently in police custody in Montenegro, and will reportedly face harsh conditions in the penal system, according to an unnamed criminal defense lawyer, in a March 29 Protos report.

It was reported that the conditions at Montenegro’s jails and prisons “haven’t changed” from those described in a 2020 human rights report by the United States State Department.

The report cited a 2015 case in which prison officers were convicted of torturing and “inflicting grievous bodily harm” on 11 inmates.

Cointelegraph reached out to the Washington Nationals for comment but did not receive a response by the time of publication.

MagazineUnstablecoins: Depegging, bank runs and other risks loom

Terra co-founder Do Kwon’s jail time in Montenegro will be harsh: Report

Now in custody in Montenegro, Do Kwon could be facing “at least a year” behind bars as the country considers extradition requests, according to one criminal defense lawyer.

Do Kwon, currently in custody in Montenegro and potentially awaiting extradition to the United States or South Korea, will reportedly face harsh conditions in the country’s penal system.

According to a March 29 Protos report, an unnamed criminal defense lawyer said conditions at Montenegro’s jails and prisons “haven’t changed” from those described in a 2020 human rights report by the United States State Department. The report cited a case in which prison officers had been convicted of torturing and “inflicting grievous bodily harm” on 11 inmates in 2015, as well as other “poor” conditions in some of Montenegro’s prisons due to overcrowding and lack of medical care.

Citing reports from the Council of Europe’s Committee for the Prevention of Torture, the State Department said many prisoners had been confined to overcrowded cells for roughly 23 hours a day, with some reports of violence between inmates. Kwon could be facing “at least a year” in such conditions as Montenegro considers extradition requests, depending on the outcome of his criminal case over allegedly forged travel documents.

“Rooms are 8 meters squared and very crowded,” the lawyer reportedly said. “There’s about 10 to 11 people in a room — there’s usually not even a bed.“

Kwon, whose whereabouts had largely been unknown following the collapse of Terra in May 2022, was detained at the Podgorica airport in Montenegro on March 23, after which time authorities confirmed his identity. The country’s Ministry of Justice announced on March 29 that both the United States and South Korean had made extradition requests for the Terra co-founder, but he could first face criminal charges in Montenegro. 

Kwon’s last tweet before his arrest in Montenegro, posted on Feb. 1.

Related: Do Kwon registered a company in Serbia for $1 amid Interpol red notice: Report

At the time of publication, it’s unclear whether South Korea or the U.S. will be able to gain custody of Kwon, a South Korean national. The situation echoes that of former FTX CEO Sam Bankman-Fried, who was in the Bahamas at the time of the exchange’s collapse and held in a detention facility with reported cases of physical abuse against prisoners and harsh conditions. Bankman-Fried is currently on bail in the U.S. while he awaits trial. 

Magazine: The ‘godfather of crypto’ risked lifetime in jail, laying foundation for Bitcoin

US and South Korea requested extradition of Terra co-founder Do Kwon — Montenegro justice minister

Do Kwon may have to serve time in Montenegro if convicted of charges related to forged identification documents before any extradition to the U.S. or South Korea is granted.

Authorities from both the United States and South Korea have made efforts to have Terra co-founder Do Kwon extradited to their respective countries following his arrest in Montenegro.

At a March 29 press conference, Montenegrin Justice Minister Marko Kovač said the United States made diplomatic efforts to ask for Kwon to be handed over, while South Korean officials have requested extradition. Kovač made the announcement following Kwon’s arrest at Montenegro’s Podgorica airport on March 23, adding the Terra co-founder’s detainment had been extended to 30 days.

“In the case when we receive several extradition requests, I would like to say that determining to which state they will be extradited is based on several factors like the severity of the committed criminal offense, the location and time when the criminal offense has been committed, the order in which we have received the request for extradition and several other factors,” said Kovač through an interpreter.

Kovač said decisions regarding custody of Kwon will go to Montenegro’s high court. According to the justice minister, the Terra co-founder used allegedly forged passports while in Montenegro and may serve time in the country related to those charges if convicted before any extradition is granted.

Kwon’s whereabouts had largely been unknown following the collapse of Terra in May 2022, though he was often active on his Twitter account and said he was making “zero effort to hide” in September. In February, reports suggested that Kwon may have traveled to Serbia — the European country borders Montenegro to the north — after Interpol issued a Red Notice for his provisional arrest.

A South Korean citizen, Kwon would likely face prosecution in his home country, where Terraform Labs was headquartered and authorities have been targeting individuals involved in the collapse of the platform. At the time of publication, the whereabouts of Terra co-founder Daniel Shin were unknown, but Kwon’s associate Han Chang-Joon was also detained in Montenegro.

Related: Korean e-commerce exec accused of accepting LUNA for shilling Terra Labs

It’s unclear which country, if any, would be the most likely to be granted extradition of Kwon. The situation echoes attempts by the United States to gain custody of former FTX CEO Sam Bankman-Fried, who was in the Bahamas at the time of the exchange’s collapse.

Magazine: ‘Terra hit us incredibly hard’: Sunny Aggarwal of Osmosis Labs

Terra co-founder in S.Korean crosshairs following Do Kwon arrest

Authorities have previously alleged that Shin earned roughly $105 million in profits from illegal sales of LUNA tokens before Terra’s collapse.

Following Terraform Labs’ co-founder Do Kwon’s arrest in Montenegro while trying to board a plane using fake documents, South Korean authorities have turned up efforts to track down and arrest Shin Hyun-Seong, also known as Daniel Shin — Terra’s other co-founder.

Since November 2022, South Korean authorities have suspected the involvement of numerous Terra colleagues in helping Do Kwon promote unstable and uncertain investment opportunities with Terra (LUNA) and TerraUSD (UST) tokens.

However, after Kwon’s arrest on March 23, 2023, South Korean prosecutors are making a fresh attempt at Shin’s arrest, suggests a Bloomberg report. It reads that the prosecutors are undertaking a renewed push to detain Shin. However, no official announcement has been made public in this regard.

Authorities have previously alleged that Shin earned roughly $105 million in profits from illegal sales of LUNA tokens before Terra’s collapse. On the other hand, Shin claims to have had no involvement in Terra after January 2020, as evidenced by his LinkedIn profile.

Co-founder of Terraform Labs, Daniel Shin’s professional experience overview. Source: LinkedIn

Arrest warrants were also subsequently sought for Shin, along with three investors and four engineers. Charges against the co-founder include fraud, breach of duty, violation of capital markets law and illegal fundraising.

Related: Do Kwon faces fraud charges from US prosecutors hours after arrest

After getting caught using fake travel documents, Kwon was detained by Montenegro authorities for a standard 72 hours. However, upon request by the authorities, the Montenegrin court approved the extension of Kwon’s detention by 30 days.

Claiming there was no intended use of fake documents, one of Kwon’s legal representatives plans to appeal the court’s decision and seek a reduction in detention time. The court considered Kwon a foreign national whose identity was not clearly identified.

Magazine: ‘Terra hit us incredibly hard’: Sunny Aggarwal of Osmosis Labs

Do Kwon to reportedly appeal against court’s decision to extend detention

A legal representative of Kwon confirmed the appeal against the Montenegrin court’s decision to detain the entrepreneur for 30 days longer than usual.

Following his arrest in Montenegro while attempting to fly using fake documents, Terraform Labs co-founder Do Kwon will reportedly appeal the court’s decision to extend detention time for up to 30 days.

A legal representative of Kwon confirmed the appeal against the Montenegrin court’s decision to detain the entrepreneur for longer than usual, according to local media Vijesti. The decision was made after Kwon was caught using fake documents at Podgorica airport while trying to fly to Dubai.

While Montenegro authorities typically allot detention for up to 72 hours, Kwon’s 30-day extension was approved after prosecutors highlighted the high possibility of an escape. The court considered that Kwon was a foreign national whose identity was not clearly identified.

Since the collapse of the Terra ecosystem, Kwon has been suspected of moving between Singapore, Dubai and Serbia by South Korean authorities.

Related: South Korea seizes $104M from Terra co-founder suspecting unfair profits

On March 23, a few hours after Kwon’s arrest in Montenegro, United States prosecutors in New York charged the entrepreneur with fraud.

As Cointelegraph reported, the 31-year-old was charged with eight separate counts, including commodities fraud, securities fraud, wire fraud, and conspiracy to defraud and engage in market manipulation.

Magazine: SEC targets Coinbase, Do Kwon arrested and FTX sells $95M in Mysten Labs: Hodler’s Digest, March 19–25

Do Kwon had the right idea, banks are risk to fiat-backed stablecoins — CZ

Given Silicon Valley Bank’s direct involvement in destabilizing USDC prices, CZ blamed banks for increasing the risks of stablecoins.

The death spiral of the Terra ecosystem served as a catalyst to the 2022 bear market — causing losses in the billions, damaging investor sentiment and intensifying the regulatory spotlight over cryptocurrencies. However, the recent depegging of Circle’s USD Coin (USDC) led Binance CEO Changpeng “CZ” Zhao to believe that traditional banks are a risk to stablecoins that are usually pegged 1:1 with fiat currencies, like the U.S. dollar.

On March 11, Circle disclosed that Silicon Valley Bank (SVB) did not process its $3.3 billion withdrawal request. The crypto market responded to the revelation by selling off USDC holdings, causing the U.S. dollar-backed stablecoin to lose its peg. Given SVB’s direct involvement in destabilizing USDC prices, CZ blamed banks for increasing the risks to stablecoins.

Supporting CZ’s sentiment, a community member pitched the idea of a crypto-backed stablecoin. CZ responded by highlighting the defunct algorithmic stablecoin launched by Do Kwon, saying:

“Do Kwon actually had the right idea, but just failed miserably on execution.”

Moreover, according to CZ, fiat currencies are a risk without adding crypto to the equation.

While numerous jurisdictions have sought legal actions against Kwon, the entrepreneur continues to reside in a safe haven unknown to the authorities.

Related: Circle’s USDC instability causes domino effect on DAI, USDD stablecoins

Many investors foresaw the possibility of USDC depegging and decided to sell their holdings to avoid losses. However, for one such investor, a hasty decision led to a loss of over $2 million for one such investor.

Instead of selling their USDC holdings in a liquidity pool for 6% slippage, the investor chose a “questionable” method resulting in a maximal extractable value (MEV) bot netting $2.045 million in profit after paying $45 in gas and $39,000 in MEV bribes.

Here’s how Binance is mitigating its stablecoin needs after BUSD ban

The recent action from Binance comes in the wake of the NYDFS ordering BUSD issuer Paxos to stop minting new coins.

Binance has turned to a new set of stablecoins in the wake of the United States Securities and Exchange Commission’s (SEC) regulatory action against its native stablecoin, Binance USD (BUSD). The SEC had sent a Wells notice, alleging BUSD violates U.S. securities law.

Following the SEC’s notice, the New York Department of Financial Services (NYDFS) asked BUSD issuer Paxos Trust to stop minting new BUSD altogether. The minting ban on BUSD has forced Binance to seek alternative methods to meet its stablecoin needs.

According to on-chain data, the largest cryptocurrency exchange by trading volume is looking to onboard TrueUSD (TUSD) and ad support for a few decentralized stablecoins. The crypto exchange minted 180 million TUSD from Feb. 16–24.

TrustToken, the operator behind U.S. dollar-pegged stablecoin TUSD, has been a Binance partner since June 2019. The partnership allowed Binance to buy TUSD for zero fees and redeem it for fiat currency. Binance’s TUSD relationship has come full circle. In September 2022, Binance auto-liquidated TUSD to BUSD to increase its market share. Now, with a ban on BUSD, Binance is increasingly minting new TUSD to mitigate its stablecoin needs.

Binance CEO Changpeng Zhao has said that the crypto exchange will look at other options to diversify its stablecoin away from BUSD after the regulatory actions. Just a couple of weeks later, Binance announced support for the decentralized borrowing protocol Liquity (LQTY) and launched TrueFi (TRU) perpetual contracts. TRU is the native token of the decentralized finance protocol TrueFi for uncollateralized lending.

Related: Binance tried to hire Gary Gensler in 2018 for closer ties with U.S. regulators: Report

The Binance listing for Liquity and TrueFi proved to be a big boost in their price, with both tokens surging 200% in the last month. Cointelegraph reached out to Binance about its interest in decentralized stablecoins but didn’t get a response by publication.

Decentralized stablecoins became popular with the advent of Terra’s native stablecoin TerraUSD (UST). Market pundits believed decentralized stablecoins would be the next big thing in the crypto ecosystem. However, with the collapse of the Terra ecosystem in May 2022, the opinions about the nascent stablecoin concept changed fast.

The Office of the Comptroller of the Currency used the depeg and collapse of the UST algorithmic stablecoin as an example of stablecoins’ “run risk,” with asset-backed stablecoins also seeing minor depeg events as a result.

Terraform Labs co-founder Do Kwon gets probed by Singaporean authorities

Local police in Singapore sent an email on Monday saying they have begun a probe connected to Do Kwon’s Terraform Labs.

Local authorities in Singapore announced they had begun a probe connected to Do Kwon’s Terraform Labs.

According to a Bloomberg report, Singaporean police sent an email on March 6, which said, “investigations have commenced in relation to Terraform Labs.” The email also added that the inquiries are “ongoing,” and Do Kwon is not currently in the city-state.

Last month, on Feb. 16, the United States Securities and Exchange Commission (SEC) accused Kwon and Terraform Labs of fraud in a new lawsuit.

Some voices in the crypto space have criticized the lawsuit as a way for the SEC to go after stablecoins with future lawsuits. Lawyers in the industry have even called the SEC’s comparisons of assets “wild.”

Meanwhile, the SEC probe uncovered that Kwon removed around 10,000 Bitcoin (BTC) from the Terra platform and the Luna Foundation Guard, which he eventually converted to fiat. In total, the SEC alleges Kwon has laundered over $100 million worth of Bitcoin since the initial collapse of the platform.

At the time of writing, Kwon has made no comment. The Terraform Labs co-founder has been active on social media throughout the scandal. However, he has not tweeted since the beginning of February.

Related: Gary Gensler’s SEC is playing a game, but not the one you think

This entire saga has its roots back in May 2022 when the Terra USD (UST) stablecoin lost its peg to the U.S. dollar. The subsequent collapse of the Terra ecosystem caused a major implosion in the digital asset market, with losses of nearly $40 billion.

Terraform Labs has also been investigated by authorities in South Korea, where a warrant was issued for Kwon’s arrest. South Korean police traveled to Serbia in their efforts to locate Kwon. 

On Feb. 15, South Korean prosecutors requested a warrant to arrest a local e-commerce executive who they accused of accepting Terra (LUNA) for promoting Terra Labs.

Yield platform Stablegains sued for promoting UST: Finance Redefined

DeFi market saw another exploit this past week on the Platypus protocol, resulting in a loss of over $8 million.

Welcome to Finance Redefined, your weekly dose of essential decentralized finance (DeFi) insights — a newsletter crafted to bring you significant developments over the last week.

The backlash from the Terra implosion still haunts the crypto world, with the now-shuttered stablecoin yield platform Stablegains being sued for customer losses. The plaintiffs allege that the platform funnelled customer funds into Anchor Protocol without users’ knowledge or consent.

Platypus, the DeFi protocol that was exploited for over $8 million, is working on a compensation plan to recover some of the funds.

Florida’s Cogent Bank is proposing a $100 million participation in loans to MakerDAO’s RWA Master Participation Trust.

Bridge protocols were the primary target of exploits last year, amounting to hundreds of millions of dollars worth of stolen funds. Trustless bridges can mitigate the issue, enabling cross-chain transfers without needing a centralized custodian, potentially making it a safer option for interoperability.

After nearly four weeks of a bullish run, the DeFi market is fighting a brave battle against the bears. There were minor price drops, and the market’s overall slightly declined as bears had the upper hand toward the end of the week.

Yield platform Stablegains sued for promoting UST as a ‘safe’ investment

DeFi yield platform Stablegains is being sued in a Californian court for allegedly misleading investors and failing to comply with securities laws.

On Feb. 18, the plaintiffs, Alec and Artin Ohanian, filed a complaint in the United States District Court for the Central District of California, alleging that the shuttered DeFi platform diverted all its customer funds to the Anchor Protocol without their knowledge or consent. Anchor Protocol offered up to 20% yields on Terraform Labs’ algorithmic stablecoin, Terra USD (UST).

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Platypus to work on compensation plan after $8.5M attack

The $8.5 million Platypus flash loan attack was made possible because of code that was in the wrong order, according to a post-mortem report from Platypus auditor Omniscia. The DeFi firm is working on a compensation plan for users’ losses after a flash loan attack drained nearly $8.5 million from the protocol, affecting its stablecoin dollar peg.

In a tweet on Feb. 18, Platypus said it was working on a plan to compensate for the damages and asked users not to realize their losses in the protocol, saying this would make it harder for the company to manage the issue. Asset liquidations are also paused, the protocol said.

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MakerDAO voting on $100M loan participation with Florida commercial bank

Crypto lending platform MakerDAO is voting on a new proposal to bring another commercial bank into its ecosystem, strengthening the connection between DeFi and traditional finance.

As per MakerDAO’s governance forum, Cogent Bank — a Florida-based commercial bank — proposes to participate with $100 million in loans to MakerDAO’s RWA Master Participation Trust.

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DeFi security: How trustless bridges can help protect users

Blockchain bridges allow DeFi users to use the same tokens across multiple blockchains. For example, a trader can use USD Coin (USDC) on the Ethereum or Solana blockchains to interact with those networks’ decentralized applications.

While these protocols may be convenient for DeFi users, they are at risk of exploitation by malicious actors. For example, in the past year, the Wormhole bridge — a popular cross-chain crypto bridge between Solana, Ethereum, Avalanche and others — was hacked, with attackers stealing over $321 million worth of wrapped Ethereum (wETH), the largest hack in DeFi history at the time.

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DeFi market overview

Analytical data reveals that DeFi’s total market value dipped below $50 billion this past week. Data from Cointelegraph Markets Pro and TradingView shows that DeFi’s top 100 tokens by market capitalization had a mixed week, with most of the tokens trading in green while a few others bled in red.

Thanks for reading our summary of this week’s most impactful DeFi developments. Join us next Friday for more stories, insights and education in this dynamically advancing space.