Co-founder of Terraform Labs, Daniel Shin, has blamed the CEO, Do Kwon, for the collapse of the stablecoin issuer in his trial. The company had imploded in May 2022 following a major sell-off in UST/Luna.
South Korean authorities indicted Shin in April 2023 on violations of capital-markets law among other charges. Back then, his lawyer, Kim Ji-dong, had said that he had nothing to do with the collapse as he left the company two years before the failure.
The lawyer added: “He voluntarily returned to South Korea immediately after the collapse, and has been faithfully cooperating with the probe for over 10 months, hoping to contribute to fact finding.”
In Shin’s recent trial, his lawyers reiterated the same, saying he “parted ways” with co-founder Kwon in 2020. He reportedly added: “The cause of the coin plunge was the unreasonable operation of the Anchor Protocol conducted by CEO Kwon and external attacks. It has nothing to do with Shin.”
Anchor is a decentralised savings protocol offering low-volatile yields on Terra stablecoin deposits. The Anchor rate is powered by a diversified stream of staking rewards from major proof-of-stake blockchains and allows investors to borrow against their crypto holdings.
The collapse of Terra was mainly caused by its algorithmic stablecoin terraUSD plunging from its 1:1 peg with the US dollar. Many in the industry also believe the rate cut by Anchor from the 20% interest that it would pay for crypto deposits to have been a trigger for the failure of the stablecoin issuer.
When Terra’s stablecoin, $UST, struggled to maintain its $1 peg, investors started fleeing from Anchor, plunging the deposits on the protocol. This further aggravated the issue.
The event sent shock waves throughout the crypto markets, following which the crypto industry was a witness to a number of bankruptcies including that of hedge fund Three Arrows Capital and lenders Voyager Digital and Celsius Network.
Back in June this year, Do Kwon was found guilty of document forgery in a fake passport case. He was then sentenced to four months in jail by the Montenegro court.
This happened after the former CEO was arrested at Montenegro’s Podgorica airport in March while attempting to travel to Dubai along with another Terra executive Han Chang-Joon for alleged possession of falsified documents.
As per the court’s verdict, two Costa Rican passports, two Belgian passports and two identity cards belonging to Kwon and Han were confiscated from them. However, Kwon reportedly denied any wrongdoing and the allegations that he and his business partner had used forged passports.
According to South Korean news outlet Segye Ilbo, he stated: “I filled out all the documents and received a Costa Rican passport through an agency in Singapore recommended by a friend.”
After Kwon serves his term in Montenegro, he will face extradition to South Korea or the US. Last month, he asked the federal court to reject the US Securities Exchange Commission’s (SEC) request to question him in the US about the crash of his company’s stablecoins Terra and Luna.
As stated by his lawyers, it would be “impossible” to bring Kwon to the US because he remains detained indefinitely in Montenegro. They also argued saying that the former CEO also cannot provide written testimony to the SEC because it would violate his due process rights under US law.
The SEC had charged the crypto developer and his company Terraform Labs with defrauding investors in February 2023. According to the filing in federal court, the regulator tagged it as a “multibillion-dollar scheme”.