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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.

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

The now-shuttered stablecoin yield platform is being sued for customer losses after allegedly funneling customer funds into Anchor Protocol without users’ knowledge or consent.

Decentralized finance yield platform Stablegains has been sued in a Californian court for allegedly misleading investors and failing to comply with securities laws.

On Feb. 18, plaintiffs Alec and Artin Ohanian filed a complaint in the U.S. District Court for the central district of California, alleging that the shutteredDeFi platform diverted all of its customer funds to the Anchor Protocol without their knowledge or consent.

Anchor Protocol offered yields of up to 20% on the Terraform Labs algorithmic stablecoin, Terra USD (UST).

“As an early supporter of and investor in TFL [Terraform Labs], Stablegains is intimately familiar with UST and LUNA. In fact, Stablegains, Inc. falsely advertised UST as a safe investment.”

Stablegains offered a 15% gain for its customers, pocketing the difference from yields offered by Anchor Protocol.

The plaintiffs also allege that UST was a security and that Stablegains broke federal securities laws:

“Stablegains plainly failed to comply with federal and state securities laws. Stablegains failed to disclose that UST is in fact a security.”

The complaint added that the firm failed to register with the U.S. Securities and Exchange Commission either as a securities exchange or as a broker-dealer.

The Ohanians stated that there were “disastrous consequences for Stablegains’ customers,” following the collapse of the UST ecosystem in May. UST de-pegged from the dollar, causing a broader run on DeFi and crypto markets in May and an eventual loss of around $18 billion from the Terra/Luna ecosystem.

Following the collapse, Stablegains allegedly altered its website and promotional material touting UST as “safe” and “fiat-backed,” effectively conceding that UST was none of those things, the complaint stated.

Instead of liquidating assets and returning funds to customers, Stablegains “retained the majority of the devalued assets deposited by its users, unilaterally opting to redirect them into Terra 2.0,” it added.

Stablegains, which launched in August 2021, shut down on May 22. It discontinued its services, apps and support for Anchor Protocol, requesting that users withdraw their funds. As reported by Cointelegraph, Stablegains was hit with a similar lawsuit at the time.

Related: SEC sues Do Kwon and Terraform Labs for fraud

The specific amount sought in damages was not detailed, however, the plaintiffs did demand a trial.

On Feb. 16, the SEC filed a lawsuit against Terraform Labs and its founder, Do Kwon, for allegedly “orchestrating a multi-billion dollar crypto asset securities fraud.”

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.

Related: The nightmare continues for Sam Bankman-Fried and FTX — Law Decoded, Nov. 14-21 

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.

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.

Breaking: Interpol ‘Red Notice’ issued for Do Kwon — South Korea prosecutors

The Terraform Labs co-founder faces charges in South Korea relating to the crash of the Terra ecosystems’ cryptocurrencies.

Interpol has reportedly issued a “Red Notice” to law enforcement worldwide for the arrest of Terraform Labs co-founder Do Kwon.

South Korean prosecutors in Seoul on Monday told Bloomberg the international policing organization issued the notice in response to charges Kwon faces in South Korea related to the collapse of the Terra ecosystem.

The news comes only a week after South Korean prosecutors reportedly asked Interpol to issue a “Red Notice” for Kwon on Sept. 19.

A Red notice is a “request to law enforcement worldwide to locate and provisionally arrest a person pending extradition, surrender, or similar legal action” according to the Interpol website.

It also comes less than two weeks after South Korean authorities issued an arrest warrant for Kwon and five other associates for alleged violations of the country’s capital markets laws.

Kwon was previously believed to have been residing in Singapore, but local authorities said on Sept. 17 he wasn’t in the country, with Kwon saying hours later he wasn’t “on the run,” though he didn’t reveal his location.

Related: South Korea issues arrest warrant for Terra founder Do Kwon

The Terra ecosystem Kwon co-founded crashed after its algorithmic stablecoin TerraUSD (UST) (now TerraUSD Classic (USTC)) lost its United States dollar peg in May causing billions of dollars worth of liquidations across the cryptocurrency market.

Breaking: Interpol ‘Red Notice’ issued for Do Kwon — South Korea prosecutors

The Terraform Labs co-founder faces charges in South Korea relating to the crash of the Terra ecosystems’ cryptocurrencies.

Interpol has reportedly issued a “Red Notice” to law enforcement worldwide for the arrest of Terraform Labs co-founder Do Kwon.

South Korean prosecutors in Seoul on Monday told Bloomberg the international policing organization issued the notice in response to charges Kwon faces in South Korea related to the collapse of the Terra ecosystem.

The news comes only a week after South Korean prosecutors reportedly asked Interpol to issue a “Red Notice” for Kwon on Sept. 19.

A Red notice is a “request to law enforcement worldwide to locate and provisionally arrest a person pending extradition, surrender, or similar legal action” according to the Interpol website.

It also comes less than two weeks after South Korean authorities issued an arrest warrant for Kwon and five other associates for alleged violations of the country’s capital markets laws.

Kwon was previously believed to have been residing in Singapore, but local authorities said on Sept. 17 he wasn’t in the country, with Kwon saying hours later he wasn’t “on the run,” though he didn’t reveal his location.

Related: South Korea issues arrest warrant for Terra founder Do Kwon

The Terra ecosystem Kwon co-founded crashed after its algorithmic stablecoin TerraUSD (UST) (now TerraUSD Classic (USTC) lost its United States dollar peg in May, causing billions of dollars worth of liquidations across the cryptocurrency market.

Terra co-founder Do Kwon says he’s not ‘on the run’

Kwon didn’t reveal his whereabouts in a series of Tweets responding to claims he fled Singapore after an arrest warrant was issued on Wednesday.

Do Kwon, the co-founder of the Terra ecosystem, took to Twitter on Saturday asserting he’s “not ‘on the run’ or anything similar” after the Singapore Police Force (SPF) said Kwon wasn’t in the city-state.

On Sept. 14, South Korean authorities issued an arrest warrant for Kwon and five other associates for alleged violations of the country’s capital markets laws. All were known to be in Singapore at the time, with prosecutors also attempting to revoke their passports a day later on Thursday.

“For any government agency that has shown interest to communicate, we are in full cooperation and we don’t have anything to hide,” Kwon tweeted.

Kwon did not reveal where he was, saying Crypto Twitter has “no business knowing my GPS coordinates.” He added they are defending themselves in “multiple jurisdictions” and look forward to “clarifying the truth over the next few months.”

Singapore does not have an extradition treaty with South Korea, but the SPF stated it will assist Korean authorities within the scope of its domestic laws and international obligations and didn’t provide any further details.

In May, the Terra ecosystem Kwon co-founded arguably had the biggest crash in cryptocurrency history after its algorithmic stablecoin TerraUSD Classic (USTC), originally TerraUSD (UST), lost its United States dollar peg to hit a low of $0.006 in June.

Its sister asset, now known as Luna Classic (LUNC) met a similar fate with an all-time low of $0.0000009 in May after hitting its all-time high of over $119 the month prior. The twin collapses caused panic among traders, with selling pressure leading to a wider collapse in the digital asset market.

Related: Collapse of Terra blockchain ecosystem forces talent migration

Previously, South Korean prosecutors banned Terra employees from leaving the country in June to stop the possibility of them fleeing to avoid investigation, Do Kwon was already residing in Singapore at the time.

In July, South Korean authorities raided 15 firms, including seven crypto exchanges connected to the collapse of Terra reportedly gaining access to data related to USTC and LUNC transactions.

Crypto insurance a ‘sleeping giant’ with only 1% of investments covered

With over $2 billion lost in decentralized finance this year, there exists a huge market opportunity for crypto insurance providers, according to an executive.

While on-chain insurance has been around since 2017, only a measly 1% of all crypto investments are actually covered by insurance, meaning the industry remains a “sleeping giant,” according to a crypto insurance executive.

Speaking to Cointelegraph, Dan Thomson, the chief marketing o of decentralized cover protocol InsurAce said there is a massive disparity between the total value locked (TVL) in crypto and decentralized finance (DeFi) protocols and the percentage of that TVL with insurance coverage:

“DeFi insurance is a sleeping giant. With less than 1% of all crypto covered and less than 3% of DeFi, there’s a huge market opportunity still to be realized.”

Although investment has poured into smart contract security audits, on-chain insurance serves as a viable solution for digital asset protection — such as when a smart contract is exploited or the front end of a Web3 protocol is compromised.

The collapse of Terra (LUNA) — since renamed Terra Classic (LUNC) — and the resulting depeg of Terra USD provides a textbook example of how on-chain insurance can protect investors, notes Thompson, adding that InsurAce “paid out $11.7 million to 155 affected UST victims.”

“Hacks in 2021 in DeFi alone accounted for $2.6 billion in losses,” amounting to $10 billion in the wider crypto space, and “we’re way past that in 2022 already,” Thomson added, emphasizing the need for on-chain insurance for digital assets.

Discussing whether traditional insurance firms may eventually offer crypto-focused products, Thomson said while it has piqued the interest of traditional firms, they have not yet moved into the space “due to their own regulations and compliance,” adding:

“I do not believe the larger traditional insurance companies will develop their own native apps for the space, but will prefer to offer a type of reinsurance as a way of getting exposure.”

Thomson said that on-chain insurance protocols have also suffered some setbacks of their own while  noting that capacity has stalled the growth of on-chain insurance protocols:

“Capacities are limited by underwriting [which is] something traditionally done with reinsurance but in DeFi it’s done by stakers and therefore limited by TVL [which makes it] hard for most protocols to build sufficient liquidity.”

This problem is exacerbated by the fact that on-chain insurance providers struggle to offer capital providers with attractive investment returns, which, in turn, discourages liquidity provision, he said. 

Thomson said his firm is now looking to resolve this capital efficiency issue by utilizing reinsurance from traditional insurance firms as a means to “turbo-charge growth through the bear market,” adding:

“To fix this, we will be one of the first protocols able to bridge back to gain access to the traditional reinsurance to supplement our existing underwriting from staked assets.”

Some cryptocurrency exchanges currently provide insurance services, but very few crypto-native protocols specialize in on-chain insurance.

Related: The increasingly acute need for crypto-native insurance

On-chain insurance services vary from protocol to protocol, but most protocols require users to specify the smart contract address they want coverage for, along with the amount, currency and time period, to generate a quote.

Many protocols then use a decentralized autonomous organization (DAO) and a token to allow token holders to vote on the validity of claims.

Among the other top on-chain insurance protocols areNexus Mutual and inSure DeFi.

Algorand Foundation outlines $35M exposure to crypto lender Hodlnaut

The Foundation stated that it is “pursuing all legal remedies to maximize asset recovery.”

The Algorand Foundation has revealed a $35 million in USD Coin (USDC) hole in its balance sheet as a result of exposure to embattled cryptocurrency lending firm Hodlnaut, which has paused withdraws since Aug. 8. 

Algorand is an institutional-grade blockchain infrastructure with embedded smart contract functionality. The Algorand Foundation is a not-for-profit community organization focused on developing the Algorand ecosystem.

The announcement was made on the Algorand Foundation website on Friday, with the Foundation stating that it’s “pursuing all legal remedies to maximize asset recovery.”

Hodlnaut’s financial situation first fell into deep waters when its $300 million investment into TerraUSD (UST) on the Anchor protocol fell dramatically following the depegging of UST and collapse of the Luna Classic (LUNC) token, resulting in the crypto lending firm pausing withdrawals and halting all trading activity, citing a liquidity crisis.

Weeks later, the firm was placed under interim judicial management, a form of creditor protection program, by the Singapore court.

The Algorand Foundation said the majority of the investment locked on the platform consisted of “locked, short term deposits,” but are now inaccessible due to Holdnaut’s suspension of withdrawals.

However, the Algorand Foundation notes that the $35 million represents less than 3% of the Foundation’s assets and they “do not anticipate [any arising] operational or liquidity issues,” and added that the “funds were a surplus to day-to-day requirements:”

“We invest a portion of our surplus treasury capital to generate yield for the purpose of Algorand ecosystem development, and these funds were invested for that purpose.”

Embattled crypto lender Hodlnaut is now subject to an interim judicial management to resolve its liquidity issues.

Related: 3AC: A $10B hedge fund gone bust with founders on the run

Under Singaporean jurisdiction, corporate entities are placed under interim judicial management for debt restructuring purposes in order to preserve and protect assets at risk prior to the onset of legal proceedings.

The Algorand Foundation has played a key role, noting that on Aug. 29, the Singapore High Court appointed the Foundation’s nominees Angela Ee along with Aaron Loh of EY Corporate Advisors to act as the Interim Judicial Managers for Hodlnaut, aimed at preserving Hodlnaut’s asset until further court action begins.

Double bubble? Terra’s defunct ‘unstablecoin’ suddenly climbs 800% in one week

The USTC price rally does not mean it would reclaim its lost U.S. dollar peg in the future.

Terra’s $40-billion experiment to create a functional “algorithmic stablecoin” project has failed drastically following its collapse in May.

Nonetheless, its native stablecoin TerraClassicUSD (USTC), earlier called TerraUSD (UST), has been thriving in the past week.

Dead stablecoin walking

To recap, UST lost its U.S. dollar peg in May following mass withdrawals from Anchor Protocol, a lending and borrowing platform offering up to 20% yield to clients on their UST deposits. As of June 15, the token was almost worthless, trading at $0.005 at the Kraken crypto exchange.

But USTC started recovering afterward, insomuch that its value per token almost reached $0.10 on June 29. Simultaneously, its capitalization surged from $65 million to $767 million in the same period, according to data from CoinMarketCap.

USTC market cap. Source: CoinMarketCap

That is despite USTC operating as an abandoned token after Terra launched a new blockchain with a new native asset LUNA 2.0, following a “hard fork” in May.

Interestingly, LUNA 2.0’s older version, called LUNA, which now operates under the name “Terra Classic (LUNC), has also witnessed a spike in its market valuation like USTC, surging from around $160 million to $767 million in June.

LUNC market cap. Source: CoinMarketCap

Massive concentrated Terra pump

According to CoinMarketCap, more than 45% of trading volume behind USTC and LUNC’s surprising price boom has originated from KuCoin, a centralized exchange platform reportedly operating from Seychelles.

KuCoin’s lead backer is NEO Global Capital, a Singapore-based venture capital firm also exposed to financial platforms like Babel Finance and CoinFLEX. Both platforms have been facing liquidity troubles due to the ongoing crypto market decline.

“This isn’t a boom, bust and boom again cycle,” warned InvestmentU, a financial analytics group in its June 28 note, saying that LUNC could decline massively because “the tech behind it is dead.”

“Its (LUNC) raison d’etre has been vanquished. And so has its price. While we can appreciate investors’ natural desires for outsized gains, there are better ways to go about it than this.”

Related: Terra’s LUNA2 skyrockets 70% in nine days despite persistent sell-off risks

The outlook appears the same for USTC, which has failed to perform its main function, i.e., providing clients a digital, stable version of the U.S. dollar.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

These are the least ‘stable’ stablecoins not named TerraUSD

Some stablecoins have failed to deliver the dollar’s stability to crypto traders long before TerraUSD’s collapse.

The recent collapse of the once third-largest stablecoin, TerraUSD (UST), has raised questions about other fiat-pegged tokens and their ability to maintain their pegs.

Stablecoins’ stability in question

Stablecoin firms claim that each of their issued tokens is backed by real-world and/or crypto assets, so they behave as a vital component in the crypto market, providing traders with an alternative in which to park their cash between placing bets on volatile coins.

They include stablecoins that are supposedly 100% backed by cash or cash equivalents (bank deposits, Treasury bills, commercial paper, etc.), such as Tether (USDT) and Circle USD (USDC).

At the other end of the spectrum are algorithmic stablecoins. They are not necessarily backed by real assets but depend on financial engineering to maintain their peg with fiat money, usually the dollar.

UST/USD daily price chart. Source: TradingView

However, following the collapse of UST—an algorithmic stablecoin, that stability is now in doubt. 

The distrust has led to massive outflows from both asset-backed and algorithmic stablecoin projects. For instance, the market capitalization of USDT has fallen from $83.22 billion on May 9—the day on which UST started losing its U.S. dollar peg—to $72.49 billion on June 2.

USDT drifted from its one-to-one dollar parity while suffering outflows, albeit briefly. Unfortunately, that is not the case with algorithmic stablecoins; some are still trading below their intended fiat pegs, as discussed below.

USDX

USDX, the Kava Network’s native “decentralized” stablecoin, was notorious for mostly trading $0.02–$0.04 cents below the dollar. But, it moved further away from its near-perfect peg with the greenback amid the TerraUSD debacle.

In detail, USDX dropped to its lowest level on record—at $0.66—on May 12. The USDX/USD pair has been attempting to reclaim its dollar peg ever since and was changing hands for around $0.89 on June 2, as shown below.

USDX price chart year-to-date. Source: CoinMarketCap

Simultaneously, USDX has witnessed outflows worth $60 million since May 9, illustrating that traders are redeeming their tokens.

Kava Labs, the development team behind Kava Network, noted that USDX lost its dollar peg due to its exposure to UST as one of its collaterals. Meanwhile, a decline across USDX’s other reserve assets, including KAVA, Cosmos (ATOM), and Wrapped Bitcoin (WBTC), also shook its stability.

In May, Scott Stuart, the co-founder and CEO of Kava Labs, asserted that USDX would retain its dollar peg after they flush UST out of their ecosystem.

VAI

Vai (VAI) is another victim of the ongoing stablecoin market rout.

The algorithmic stablecoin, built on the Binance Smart Chain-based Venus Protocol — a lending platform, traded for $0.95 this June 2. However, like USDX, the token is notorious for trading below its intended dollar peg since launch.

Related: DeFi protocols launch stablecoins to lure new users and liquidity, but does it work?

For instance, in September 2021—long before the TerraUSD’s collapse, VAI had dropped as low as $0.74. In addition, the depeg scenario occurred after Venus Protocol suffered a $77 million loss on bad debts in May 2021 due to large liquidations in its lending platform.

VAI price chart to date. Source: CoinMarketCap

The market cap of VAI was $272.84 million in May 2021. But after the Venus debt fiasco, coupled with TerraUSD’s collapse, VAI’s net valuation dropped to almost $85 million, suggesting a substantial plunge in its demand.

Some stable exceptions

Dai (DAI), an algorithmic stablecoin native to Maker—a peer-to-contract lending platform, performed exceptionally well versus its rivals, never fluctuating too far from its promised dollar peg even though witnessing a 20% decline in its market capitalization since May 9.

DAI market cap year-to-date. Source: CoinMarketCap

FRAX and MAI, other algorithmic stablecoin projects, also maintained their dollar peg during TerraUSD’s crash. 

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.