Terra Plummets as Do Kwon Faces Arrest in South Korea

According to the prosecutor’s office, all six wanted individuals from Terraform Labs currently reside in Singapore. 

Manhunt Begins for Do Kwon

The law is finally catching up with Do Kwon.

A Wednesday report from South Korean news outlet Chosun Ilbo has revealed that a Seoul court had issued arrest warrants for the Terra founder and five other individuals. The warrants alleged that Kwon and his accomplices violated Korean capital markets law, according to a text message from the prosecutor’s office. 

In response to the news, Terra 2.0, the blockchain that Kwon’s company Terraform Labs launched after the collapse of the original Terra blockchain, has been hit hard. The network’s native LUNA token has dropped more than 33% since the news broke.

Strangely, LUNA experienced a substantial price jump on September 9. The token soared over 300% in a day to hit a local high of $7.65 after previous trading in a tight range between $1.50 and $2.50 for several weeks. After today’s dump, LUNA is currently trading at around $2.79, down 63% from its recent peak. 

Kwon’s arrest warrant comes after the widely-documented collapse of the Terra blockchain in May. After briefly becoming the fifth-largest cryptocurrency by market cap, the blockchain’s ecosystem imploded when investors lost confidence in the dollar peg of the network’s UST stablecoin. Since UST was not backed by real dollars and instead held its value through an algorithmic relationship with LUNA, the loss of confidence resulted in a death spiral that sent the price of LUNA and UST down to fractions of a penny, wiping out more than $40 billion of value. LUNA was renamed LUNC (Luna Classic) when Terra 2.0 launched, and it’s taken a 21.8% hit on today’s news, trading at about $0.00028 at press time. 

Terra’s collapse triggered investigations from the U.S. Securities and Exchange Commission, Korean regulators, as well as several class-action lawsuits. U.S. Treasury Secretary Janet Yellen also referenced the incident in a recent speech calling for increased stablecoin regulation. 

In July, South Korean officials raided at least seven cryptocurrency exchanges in connection with investigations into Terraform Labs. Several lawsuits also claim that Kwon and his company defrauded investors and accused the firm of running a Ponzi scheme. 

In an interview with crypto media startup Coinage last month, Kwon said he intends to cooperate with law enforcement when the time comes. However, according to the Seoul prosecutor’s office, Kwon and his associates currently reside in Singapore. 

Disclosure: At the time of writing this piece, the author owned ETH, BTC, and several other cryptocurrencies.