An investigation into possible illegal activities being conducted behind the recently-collapsed algorithmic stablecoin terraUSD (UST), along with its sister token LUNA, has intensified. This is because local media recently reported that authorities had now raised the home of the company’s co-founder, Daniel Shin, in Seoul.
Shin under investigation
The reports also indicated that investigators had also paid a visit to the office of Chai, a mobile payment app that Shin had launched back in 2019. The payments app has been advertised as the first one that leverages the Terra blockchain for allowing anyone who has a bank account to make transactions with local Korean businesses for a very low cost.
The reports about the raids conducted on the co-founder’s home, along with the offices of two other companies that are associated with Chai, were confirmed by a spokesperson of the Prosecutors Office in the Seoul Southern District, but no other details were provided.
The reason for the raids
In 2018, Shin and Kwon had come together and founded Terraform Labs. Initially, their goal had been to give competition to payment companies, such as PayPal. In the same year, the two were able to raise a sum of $32 million and conducted an initial coin offering in 2019 that helped them raise $62 million.
In March 2020, Shin decided to step down from his position of the chief executive of Terraform Labs. He also decided to reduce the stake he had in the company and this left the other founder, Do Kwon, in control of the business. Shin had stated that this was because he wanted to focus more on Chai.
The raids that were conducted were in line with an ongoing investigation over allegations that Do Kwon had deliberately engineered the collapse of the TerraUSD stablecoin. The UST stablecoin was different from the other stablecoins in the market. The latter are usually pegged to a fiat currency like the US dollar or the Euro. However, UST maintained its value through a complex algorithm that involved burning the LUNA token for minting the stablecoin.
Before LUNA and UST imploded in May, the two had been termed as the 9th and 10th largest tokens in the crypto market because of their market capitalization. They wiped out almost $55 billion from the value of the crypto market.
South Korean investigators visited the offices of a number of local crypto exchanges on Wednesday, which include Coinone, Bithumb, and Upbit. The team took transaction records and a number of other documents. The authorities are planning to analyze the data accumulated during these raids in order to calculate the losses that investors suffered.
According to prosecutors, they would also investigate if Do Kwon also evaded taxes by moving the profits he earned via crypto transactions into offshore accounts. A travel ban had also been imposed on members of the Terraform Labs’ team last month, with at least 15 employees not allowed to leave the country with the investigation taking place.