Terra

Rating agencies, not regulators, can rebuild trust in crypto after FTX

Private rating agencies could work better and more quickly than regulators when it comes to reviewing businesses in the cryptocurrency industry.

The last year has been an eventful one for the crypto space. The collapse of the Terra ecosystem and its TerraUSD (UST) algorithmic stablecoin saw $50 billion wiped off the market in a flash. And more recently, FTX, an exchange many thought was “too big to fail,” came crashing down. There’s been no shortage of drama in the space, which has seen name-stay businesses and projects disappear along with investors’ funds.

Given the events of this year, it’s inevitable that serious government attention is coming for the space, in every major jurisdiction — and on the time scale of a few months to at most a few years, not decades. This was fairly clear to most industry observers even before the recent FTX debacle, and now it has become glaringly obvious.

There is much debate in the space about whether this is positive. The purpose of financial regulation is to protect end-users from being fleeced and misled by financial operators of various sorts and to promote the overall health of the economy. And it’s clear current financial regulations are highly variable in their effectiveness in these regards. Additionally, it is unclear what sort of regulations could be put in place that would be truly beneficial for the industry and its customers.

Perhaps instead of regulation, we should be focusing our efforts in other places to ensure crypto gets its house in order. Outlined below are three key benefits of crypto rating agencies — community-driven bodies that assess projects — and how they could solve the issues with crypto.

Rating agencies can move at the pace of crypto

The crypto space is ever-changing and fast-paced. Between November 2021 and November 2022, almost 2,000 new cryptocurrencies were created — a nearly 25% increase in the total number of currencies. New tokens and projects are constantly appearing.

While some of the projects appearing are innovative and push the boundaries of technology, there can be many dangers for participants to navigate. The cypherpunk ethos underlying early crypto innovations holds that the space be anonymous. However, when you mix this anonymity with a large body of relatively naive consumers, it creates a beautiful environment for fraud, scams and pyramid schemes.

This could be an issue for regulators, as implementing policy is time-consuming. For example, the European Union’s Markets in Crypto-Assets framework took over two years to draft and approve. In the time it takes to review and implement protective measures, the space will have already moved on to new dangers.

Crypto rating agencies would be the antithesis of this. They would be at the forefront of the industry. They could provide consumers with relatively impartial, open-minded analysis of the algorithms, structures, communities, risks and rewards underlying various products — at a rapid speed commensurate with the development of these new products.

Terra served as a prime example of how this would work. Some in the space knew that Terra had unsound tokenomics, which ultimately led to its downfall. Those without backgrounds in quantitative finance and tokenomics wouldn’t have the same understanding. Additionally, regulators were not even aware of Terra until it collapsed; thus, they couldn’t protect investors from it. By having knowledgeable, recognized bodies reviewing cryptocurrencies and businesses in the space, investors can be swiftly made aware of the underlying issues in projects and make informed decisions as to whether they want to take the risk.

Bad actors can be stopped before they cause problems

While regulations are put in place to deter bad actors and protect people, they don’t always work. And this is not just exclusive to crypto. There will always be law-breaking projects in the space that investors have to avoid.

This is evidently clear when we look at FTX. The exchange promised to hold customers’ funds with a fully backed reserve. However, when FTX’s sister company, Alameda Research, had its balance sheet publicly revealed, it was shown that the two firms illicitly used investors’ funds. This caused FTX users to try to withdraw their money. However, because FTX didn’t fully back its reserves, it couldn’t pay users back. This is fraudulent activity, and the regulations currently in place should have deterred FTX from doing this, but they didn’t.

The implementation of rating agencies could have prevented this catastrophe. Nine months before the fall of FTX, research was conducted into the platform, and concerning links between it and Alameda Research were uncovered. However, this information wasn’t widely disseminated and never reached the majority of FTX users. Had rating agencies been in place, this information could’ve been made more publicly available, allowing users to deposit their funds into safer exchanges.

Rating agencies would act as a guard against illicit activity. They would be highly valuable, trusted sources of in-depth information regarding the quality of different blockchain networks, presented in various levels of accessibility and detail. They would also serve to reduce the crude overgeneralization of crypto that is present in the media, as well as the wealth of disinformation available online. Rating agencies could provide investors with the necessary information that they need to avoid bad players.

Rating agencies would be created by crypto and for crypto

The financial market is currently set up to favor institutions and the wealthy. In the United States, there are laws banning ordinary citizens who don’t meet a wealth or income threshold from being “accredited investors.” This means that for an everyday person to access the stock market, they have to go through a third party, such as a bank or a brokerage firm — which typically charge fees for access. Retail investors have less freedom and access to the market, and their profits are often fed back to other parties.

It is questionable as to why the market is set up this way. If the purpose is to protect folks from being sucked into money-losing deals, why are these same folks allowed to gamble their life savings away in casinos, or buy state-issued lottery tickets with plainly losing odds? It’s almost as if the government’s goal has been to ban non-wealthy people from any form of gambling where they would have the opportunity to exercise insight and judgment and actually have winning odds.

Without careful consideration, this current setup could be replicated in crypto. Traditional finance regulators may impose policies that are present in the existing financial market, such as the aforementioned income threshold to become an “accredited investor.” These arbitrary policies may be implemented under the guise of protecting people but could instead just lock retail investors out of the crypto space.

Crypto rating agencies, on the other hand, would be set up by crypto-natives with retail investors in mind. The goal of rating agencies is to give the best possible advice to investors, and to do so requires a deep understanding of the space. Additionally, rating agencies are not enforcers — they are simply guides. Participants would still have the freedoms they currently have, just with much better knowledge.

Regulators have turned their heads to crypto, and it’s clear that new policies will be coming very soon. However, they will likely be outdated and ineffective on arrival. If the crypto space wants to improve, it needs to take action, implementing rating agencies that can ensure bad players are highlighted and removed from the community.

Ben Goertzel is the CEO and founder of SingularityNET and chairman of the Artificial General Intelligence Society. He has worked as a research scientist at a number of organizations, most notably as the chief scientist at Hanson Robotics, where he co-developed Sophia. He served previously as a director of research at the Machine Intelligence Research Institute, as the chief scientist and chairman of AI software company Novamente LLC and as chairman of the OpenCog Foundation. He graduated from Temple University with a PhD in mathematics.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

3 reasons why BNB price risks another 30% decline by January

BNB has entered the breakdown stage of its prevailing ascending triangle pattern alongside some negative fundamentals that can push price further down.

BNB (BNB), the native token of the Binance crypto exchange, is under threat of undergoing a significant price correction in the coming weeks, based on a mix of technical and fundamental indicators.

BNB triangle breakdown continues

From a technical perspective, BNB has entered the breakdown stage of its multi-month ascending triangle pattern, a trend continuation indicator. The breakdown could last until the price reaches the level that comes to be at the length equal to the triangle’s maximum height.

In other words, BNB’s ascending triangle breakdown target is near $170, down about 30% from the current price levels, as shown below. The BNB/USD pair could drop to the said level by January 2023.

*BNBUSD three-day price chart featuring ascending triangle breakdown. Source: TradingView*

For now, BNB’s breakdown move appears to be halting near $222, which has served as a strong support level in recent history, including the declines witnessed in the aftermath of the Terra (LUNA) collapse in May 2022.

BNB could retest the $222 as support, based on a rising wedge technical setup forming on the four-hour chart, as shown below.

*BNB/USD 4H price chart featuring rising wedge breakdown setup. Source: TradingView*

BNB shorts gain momentum

The bearish technical setup for BNB gets further cues from an increasing number of short positions.

Notably, the BNB’s price decline witnessed in recent days has coincided with a rise in its open interest (OI), which reached over $415 millio on Dec. 18, its highest level since November 2021. A rising OI and falling price suggest that traders have been opening new short positions in the BNB market.

*BNB/USD daily price chart versus aggregate open interest. Source: TradingView*

Wick, an options trader-cum-analyst, said BNB could be in “big trouble” if Bitcoin (BTC) falls more. The daily correlation coefficient between BNB and BTC has been mostly positive throughout their history.

“First target is $197,” he tweeted.

Binance insolvency fears drive exchange withdrawals

From a fundamental perspective, BNB looks weaker due to its parent platform Binance’s mounting legal issues. Binance could face potential criminal charges concerning money laundering and sanctions violations.

In addition, the FTX debacle also created skepticism among investors toward Binance. Many speculate that, like FTX, Binance may have used BNB as collateral for loans. While Binance has denied such rumors, its clarification has done little to help BNB snap its downtrend.

*BNB/USD daily price chart. Source: TradingView*

Moreover, the growing uncertainty prompted customers to withdraw $3.6 billion worth of cryptocurrencies in a week, according to data revealed by Nansen on Dec. 13. Later, the exchange halted withdrawals of USD Coin (USDC), a stablecoin backed by its rivals Circle and Coinbase, which exacerbated rumors that it might become insolvent.

*Bitcoin balance on Binance. Source: Glassnode*

On Dec. 14, Binance CEO Changpeng Zhao downplayed insolvency risks by noting that the exchange had experienced bigger withdrawals during the Terra and FTX crashes, adding that their ability to meet the withdrawal requests points toward healthy “stress tests.”

“Now deposits are coming back in,” Zhao said.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

South Korean court freezes $92M in assets related to Terra tokens

The CEO of Terraform Labs’ affiliate firm Kernel Labs reportedly held the largest amount in illegal proceeds from Terra.

More than six months after the collapse of the Terra ecosystem, South Korean authorities continue to investigate and freeze the funds of persons involved in Terra.

After seizing 140 billion won ($108 million) from Terra co-founder Shin Hyun-Seong in November, the Seoul Southern District Court has recently ruled to confiscate more assets related to Terra.

The South Korean court has ordered to freeze of 120 billion won ($92 million) in assets of former and incumbent CEOs of Terraform Labs’ affiliate firm Kernel Labs, The Korea Economic Daily reported on Dec. 20.

Founded in 2018, Kernel Labs is a blockchain consultancy firm focused on decentralized applications and blockchain payment systems. Kernel Labs is believed to have close ties with Terraform Labs, as CEO Kim Hyun-joong once reportedly served as vice president of engineering at Terraform Labs. According to some sources, Kernel Labs employees also worked at the South Korean office of Terraform Labs.

According to the new report, the Seoul Southern District Court has accepted the prosecution’s request to seize the property of seven people involved in selling pre-issued Terra (LUNA) tokens to make astronomical profits.

Kernel Labs CEO Kim is one of the persons involved in the case, reportedly holding the largest amount in illegal proceeds from Terra. Prosecutors estimated Kim’s illegal gains to amount to at least 79 billion won ($61 million). Prosecutors also found that another Kernel Labs executive, a former CEO, received about 41 billion won ($31 million) in illegal proceeds from Terra.

Kim reportedly made some major real estate purchases in South Korea in 2021. In November, he bought a building in Gangnam-gu, the most expensive area in Seoul, for 35 billion won ($27 million). In June, he also purchased an apartment in Seongdong-gu for about 9 billion won ($7 million).

The news comes amid global authorities continuing to search for Terraform Labs’ controversial founder and CEO Do Kwon. According to the latest reports, South Korean authorities believe that Kwon was hiding in Serbia as of mid-December after leaving Singapore a few months ago.

As previously reported, the collapse of Terra has emerged as one of the biggest contagions on the cryptocurrency market in 2022. Terra’s algorithmic stablecoin, TerraUSD Classic (USTC), was one of top 10 cryptocurrencies before it lost its United States dollar peg in May. The event triggered a domino effect on crypto markets, causing massive liquidations and uncertainty, which subsequently undermined the crypto lending industry.

Algorithmic stabilization is the key to effective crypto-finance

Crypto needs to move on from the LUNA crash and start trusting algorithmic stablecoins again.

After the collapse of Terraform Labs’ cryptocurrency, Terra (LUNA), and its stablecoin, Terra (UST), the notion of “algorithmic stabilization” has fallen to a low point in popularity, both in the cryptocurrency world and among mainstream observers.

This emotional response, however, is strongly at odds with reality. In fact, algorithmic stabilization of digital assets is a highly valuable and important class of mechanism whose appropriate deployment will be critical if the crypto sphere is to meet its long-term goal of improving the mainstream financial system.

Blockchains, and other similar data structures for secure decentralized computing networks, are not only about money. Due to the historical roots of blockchain tech in Bitcoin (BTC), however, the theme of blockchain-based digital money is woven deep into the ecosystem. Since its inception, a core aspiration of the blockchain space has been the creation of cryptocurrencies that can serve as media of payment and stores of values, independently of the “fiat currencies” created, defended and manipulated by national governments.

So far, however, the crypto world has failed rather miserably at fulfilling its original aspiration of producing tokens that are superior to fiat currency for payment or for value storage.

In fact, this aspiration is eminently fulfillable — but to achieve it in a tractable way requires creative use of algorithmic stabilization, the same sort of mechanism LUNA and other Ponzi-esque projects have abused and thus given an unjustly bad reputation.

Nearly all crypto tokens out there today disqualify themselves as broadly useful tools for payment or value storage for multiple reasons — they are too slow and costly to transact with, and their exchange values are too volatile.

The “slow and costly” problem is gradually being addressed by improvements in underlying technology.

The volatility problem is not caused directly by technological shortcomings but rather by market dynamics. The crypto markets are not that huge relative to the size of global financial systems, and they are heavily traded by speculators, which causes exchange rates to swing wildly up and down.

The best solutions the crypto world has found to this volatility issue so far are “stablecoins,” which are cryptocurrencies with values pinned to fiat currencies like the United States dollar or euro. But there are fundamentally better solutions to be found that avoid any dependency on fiat and bring other advantages via using algorithmic stabilization in judicious (and non-corrupt) ways.

Troubles with stablecoins

Stablecoins like Tether (USDT), BinanceUSD (BUSD) and USD Coin (USDC) have values tied close to that of USD, which means they can be used as a store of value almost as reliably as an ordinary bank account. For people already doing business in the crypto world, there is utility in having wealth stored in a stable form within one’s crypto wallet, so one can easily shift it back and forth between the stable form and various other crypto products.

The largest and most popular stablecoins are “fully backed,” meaning, for example, that each dollar-equivalent unit of USDC corresponds to one U.S. dollar stored in the treasury of the organization backing USDC. So if everyone holding a unit of USDC asked to exchange it for a USD at the same time, the organization would be able to rapidly fulfill all the requests.

Some stablecoins are fractionally backed, meaning that if, say, $100 million in stablecoins have been issued, there may be only $70 million in the corresponding treasury backing it up. In that case, if 70% of the stablecoin holders redeemed their tokens, things would be fine. But if 80% redeemed their tokens, it would become a problem. For FRAX and other similar stablecoins, algorithmic stabilization methods are used to “maintain the peg.” That is, to make sure the exchange value of the stablecoin remains very close to that of the USD peg.

Terra’s UST was an example of a stablecoin whose backing reserve consisted largely of tokens created by the people behind LUNA as governance tokens for their platform, rather than USD or even cryptocurrencies like BTC or Ether (ETH) defined independently of LUNA. When LUNA began to destabilize, the perceived value of their governance token went down, which meant the cash value of their reserves decreased, which caused further destabilization, etc.

While LUNA did use algorithmic stabilization, the core problem with their set-up was not this — it was the presence of vicious circularities in their tokenomics, such as the use of their own governance token as a backing reserve. Like most other flexible financial mechanisms, algorithmic stabilization can be manipulated.

Every major government is explicitly targeting stablecoins in their current regulatory exercises, with the goal of coming up with strict regulations on the issuance and properties of any crypto token that seeks to match the value of fiat currency.

The answer to all these issues is a relatively simple one: Utilize the flexibility of blockchain-based smart-contract infrastructure to create new financial instruments that achieve useful forms of stability without pegging to fiat.

Liberating algorithmic stabilization

“Stability” does not intrinsically mean correlation with fiat currency value. What it should mean for a token to be stable is that year on year, it should cost roughly the same number of tokens to buy the same amount of stuff — carrots, chickens, fencing material, rare earths, accounting services, whatever.

This leads to what my colleagues in the Cogito project are doing, with new tokens that they call “tracercoins,” which really are stablecoins but of a different sort, pinned approximately to quantities other than fiat currencies. For example, the Cogito G-coin is pinned to a synthetic index that measures progress on improving the environment (e.g., global temperature).

Tracercoins can be programmed to track transactions in whatever manner is required by law in the jurisdictions where they are used. But they are not trying to emulate the currency of any particular country, so they will not likely be regulated as strictly as fiat-pinned stablecoins.

Because the pegs for these tokens are synthetic, it’s less of a traumatic market-psychology issue if the tokens vary from their pegs a bit from time to time.

What we have here, then, are stores of value that are potentially better even than the U.S. dollar and other traditional financial assets, in terms of maintaining fundamental value as the world evolves … and that are much less volatile than BTC and other standard crypto assets because of the stabilization built into their tokenomics.

Coupled with modern blockchain efficiency optimizations, we also have a viable payment mechanism that is not tied to the currency of any one country.

Crypto has the potential to fulfill its ambitious long-time aspirations including creating financial tokens serving as better value-stores and payment mechanisms than fiat currencies.

To realize this potential the community needs to set aside fears incurred by the various frauds, scams and badly-architected systems that have plagued the crypto world, and aggressively deploy the best tools at hand — such as fractional reserve-based algorithmic stabilization — in the service of creative designs aimed at the greater good.

Ben Goertzel is the CEO and founder of SingularityNET. He served previously as a director of research at the Machine Intelligence Research Institute, as the chief scientist and chairman of AI software company Novamente LLC and as chairman of the OpenCog Foundation. He graduated from Temple University with a PhD in mathematics.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Former top SEC crypto regulator hired by Caroline Ellison

Ex-Alameda Research head will be represented by Stephanie Avakian and a team of attorneys from WilmerHale.

A former top crypto regulator with the United States Securities and Exchange Commission (SEC) will represent Caroline Ellison, the ex-Alameda Research CEO, in an ongoing federal probe, according to a Dec. 10 report from Bloomberg.

Ellison will be represented by Stephanie Avakian and a team of attorneys from WilmerHale. Avakain is currently chair of the Securities and Financial Services department at the law firm. At the SEC, she was a director at the Enforcement Division, where she expanded cryptocurrency oversight, bringing cases against Robinhood and Ripple Lab.

According to the law firm’s website, “Ms. Avakian oversaw the Division’s approximately 1,400 professionals and staff. During her four years leading the Division, the SEC brought more than 3,000 enforcement actions, obtained judgments and orders for more than $17 billion in penalties and disgorgement, and returned approximately $3.6 billion to harmed investors.”

Her profile at the law firm website also noted that under “Ms. Avakian’s direction concerned a wide range of issues including insider trading, financial fraud and disclosure violations, auditor and accounting issues, market structure, asset management, and the Foreign Corrupt Practices Act. She also led the Enforcement Division in confronting novel issues at the forefront of the markets today, such as initial coin offerings, digital assets, and cybersecurity.”

A number of investigations are ongoing and at least seven class action lawsuits have been filed against FTX Group and its heads, Cointelegraph reported. Prosecutors with the United States attorney’s office in the Manhattan district of New York and California’s Department of Financial Protection and Innovation are investigating the bankrupt crypto exchange and its subsidiaries.

Federal prosecutors have also begun investigating whether former FTX CEO Sam Bankman-Fried was behind the collapse of the Terra ecosystem. As part of a broader inquiry into FTX’s own collapse, prosecutors are looking into whether Bankman-Fried’s empire intentionally caused a flood of “sell” orders on Terra’s algorithmic stablecoin TerraUSD Classic (USTC). According to a report by The New York Times, the majority of the USTC sell orders came from Alameda Research.

FTX’s Bankman-Fried to face market manipulation probe, Do Kwon chimes in

As part of a broader inquiry into FTX’s collapse, federal prosecutors are looking at the role that FTX and Alameda may have played in the fall of Terra.

United States federal prosecutors have reportedly begun investigating whether the collapse of the Terra ecosystem was in fact triggered by market manipulation tactics by former FTX CEO Sam Bankman-Fried.

According to a Dec. 7 report from The New York Times (NYT), the prosecutors — as part of a broader inquiry into FTX’s own collapse — are investigating whether Bankman-Fried’s empire intentionally caused a flood of “sell” orders on Terra’s algorithmic stablecoin TerraUSD Classic (USTC), formerly TerraUSd (UST).

The sudden increase in UST sell orders were said to make it difficult to match them with corresponding “buy” orders, which in turn forced more downward price pressure on UST, causing it to depeg from its intended 1:1 ratio with the U.S. dollar.

The events also led to the fall of Terra’s native token, Terra Classic (LUNC), formerly LUNA, as the two cryptocurrencies were designed to be linked.

But while no one has been able to precisely determine the root cause behind the collapse of LUNC and USTC in May, it is known that the majority of the USTC sell orders came from Bankman-Fried’s trading firm Alameda research, according to the NYT.

A person with knowledge on the matter also told NYT that Alameda Researched also placed a big bet on the price of LUNC falling.

Like with most comments Bankman-Fried has shared since FTX’s collapse, the former CEO claimed that he was “not aware of any market manipulation and certainly never intended to engage in market manipulation,” according to NYT.

“To the best of my knowledge, all transactions were for investment or for hedging,” he added.

Responding to the recent report, Terraform Labs CEO Do Kwon shared his thoughts on the matter to his 1 million Twitter followers in a Nov. 8 tweet, who suggested it was time for Genesis Trading come clean about an alleged $1 billion loan in UST to “SBF or Alameda” shortly before Kwon’s Terra ecosystem crashed.

I think the time has come for @GenesisTrading to reveal if they provided the $1B UST shortly before the crash to SBF or Alameda – the purchase from LFG was represented as stemming from “interest to participate in the Terra Defi ecosystem” – not to provide ammo for a peg attack

— Do Kwon (@stablekwon) December 8, 2022

Kwon also stated that a large currency contraction that UST underwent in Feb. 2021 was started by Alameda “when they sold 500mm UST in minutes to drain its curve pools during the MIM crisis.”

“What’s done in darkness will come to light,” Kwon added on the matter.

Japan recommends against algorithmic backing in stablecoins

The potential legal status of the Japanese Financial Service Agency’s recommendation is not clear as the current legislation is silent on algorithmic stablecoins.

After passing its landmark legislation on stablecoins in June, Japanese regulators are considering complementing it by restricting the algorithmic backing of stablecoins. The intention comes as a recommendation from the Financial Service Agency (FSA) and was repeated by the country’s Vice Minister for International Affairs, Tomoko Amaya.

During his speech on crypto assets at a roundtable hosted by the Official Monetary and Financial Institutions Forum (OMFIF), Amaya laid out Japan’s regulatory framework, emphasizing the factors of financial stability, user protection, and anti-money laundering/ combating the financing of terrorism (AML/CFT). The speech was originally held in November, but the FSA published the full document on Dec 7.

The 29-paged presentation systemizes the Japanese approach to crypto regulation, formed by several major legislations — the Banking Act, the Payment Services Act and the Financial Instruments and Exchange Act. One familiar with the Japanese regulatory environment couldn’t find anything new at this point, although the accent on differentiating between the “crypto assets” and “digital-money type stablecoins” gives a distinct perspective on the local regulators’ approach to the latter.

Amaya’s speech also doesn’t specify any particular dates or headlines for future legislation. However, at the end of the document, in the “Way Forward” section, the Vice Minister cites the FSA recommendations, reportedly made in October. As the quote goes:

“The proposed review states that ‘global stablecoins must not use algorithms in stabilizing their value’ and strengthens the ensuring of redemption rights.”

This recommendation would probably be taken into consideration by lawmakers in the future, as the current stablecoins’ regulation, which was passed by Parliament in June and will become law in June 2023, doesn’t cover algorithmic stablecoins. The bill itself came in the aftermath of a massive decline in cryptocurrency markets fueled by the Terra tokens collapse, with the algorithmic stablecoin Terra USD (UST) losing its 1:1 value to the U.S. dollar in early May.

South Korean judge dismisses arrest warrants for Terra co-founder Do Kwon’s former associates

Judge Hong Jin-Pyo reportedly said there was little risk of Shin Hyun-seong or other Terra associates destroying evidence related to the case against the platform.

A judge with the Seoul Southern District Court has reportedly set aside arrest warrants for Terra co-founder Shin Hyun-seong along with those of 3 Terra investors and 4 developers.

According to an Dec. 3 report from South Korea’s Yonhap News Agency, Judge Hong Jin-Pyo said there was little risk of Shin or the Terra associates destroying evidence related to the case against the crypto firm, and dismissed warrants that the Seoul Southern District Prosecutors Office issued on Nov. 29. The report added that Terra co-founder Do Kwon, also facing legal action in South Korea for his role in the firm’s collapse, was unlikely to return to the country.

“The Seoul Southern District Court’s ruling on Dec. 3rd to reject South Korean prosecutors’ detention warrant requests for former Terraform Labs employees once again illustrates the unfounded nature of the prosecutors’ claims,” a Terra spokesperson said to Cointelegraph.

Authorities in South Korea arrested Terraform Labs’ head of business, Yoo Mo, in October, but Judge Hong dismissed the warrant in a similar manner within 48 hours, saying it was difficult to see the “necessity and significance” of the arrest. In contrast, Kwon was still the target of lawmakers and regulators, having his name added to Interpol’s Red Notice list and no longer holding a valid South Korean passport for international travel.

Kwon has continued to be active on social media following the collapse of Terra despite many crypto users directly blaming him for their loss of funds and the events surrounding the current bear market. In September, the Terra co-founder said he was “making zero effort to hide” from authorities. He subsequently spoke with infamous hedge fund manager and pharmaceutical head Martin Shkreli on a Twitch podcast discussing FTX and life in prison.

South Korean judge dismisses arrest warrants for Terra co-founder Do Kwon’s former associates

Judge Hong Jin-Pyo reportedly said there was little risk of Shin Hyun-seong or other Terra associates destroying evidence related to the case against the platform.

A judge with the Seoul Southern District Court has reportedly set aside arrest warrants for Terra co-founder Shin Hyun-seong, along with three Terra investors and four developers.

Kwon has continued to be active on social media following the collapse of Terra despite many crypto users directly blaming him for their loss of funds and the events surrounding the current bear market. In September, the Terra co-founder said he was “making zero effort to hide” from authorities. He subsequently spoke with the infamous hedge fund manager and pharmaceutical head Martin Shkreli on a Twitch podcast discussing FTX and life in prison.

South Korea issues arrest warrant for Do Kwon’s former colleagues

Arrest warrants were sought for Terraform Labs co-founder Daniel Shin, three investors and four engineers responsible for TerraUSD (UST) and LUNA initiatives.

Amid the ongoing manhunt for Terraform Labs co-founder and CEO Do Kwon, South Korean authorities have spread out their investigations to target other Terra executives. Prosecutors issued an arrest warrant for co-founder Daniel Shin and seven other engineers and investors of the firm following suspicion of gaining illegal profits before the massive collapse of the Terra ecosystem.

The Seoul Southern District Prosecutors Office in South Korea suspected that Shin possessed Terra (LUNA) tokens, which were pre-issued without the public knowledge of investors. In doing so, Shin allegedly bagged profits worth 140 billion won (roughly $105 million) by selling the pre-issued tokens during the bull market.

Arrest warrants were also sought for three Terraform Labs investors and four engineers responsible for TerraUSD (UST) and LUNA initiatives, confirmed local media Yonhap News Agency. On Nov. 19, South Korean authorities seized assets worth over $104 million from Shin under the same suspicion of making unfair profits.

At the time, Shin’s attorney maintained the counter-narrative, stating that “Reports that CEO Shin Hyun-seong sold LUNA at a high point and realized profits or that he made profits through other illegal methods are not true.”

Speaking against the arrest warrant, Shin pointed out:

“I left (Terraform Labs) two years before the collapse of Terra and Luna, and have nothing to do with the collapse.”

The seizure of funds aimed to minimize further losses for investors in case Shin decided to dispose of the stolen funds. While Kwon maintains that he’s not on the run from South Korean authorities, 4,000 members of a retail investor group are attempting to track down the fugitive’s whereabouts.

On Oct. 6, South Korea’s Ministry of Foreign Affairs ordered Kwon to surrender his passport, which, if not done, would result in the permanent cancellation of his passport. The deadline has passed since.

A local report from South Korea claimed that prosecutors obtained evidence regarding Kwon’s order to manipulate the price of Luna Classic (LUNC). However, a Terraform Labs spokesperson dismissed the allegations when speaking to Cointelegraph, highlighting their disappointment in seeing “the Korean prosecutors continue to try to contort the Capital Markets Act to fit their agenda and push baseless claims.”

Unconfirmed reports suggest that Kwon moved from South Korea to Singapore before ultimately transitioning to Dubai, United Arab Emirates.