Regulators chip in, South Korean lawmaker demands parliamentary hearing on TerraUSD’s collapse

• A South Korean politician has demanded calling Terra founder Do Kwon and related exchange officials for a parliamentary hearing.
• Following the TerraUSD collapse, South Korean financial regulators have called for an emergency investigation of local exchanges.

The recent collapse of the Terra ecosystem and the events surrounding it have drawn the attention of regulators. After the collapse of the TerraUSD stablecoin last week, Yun Chang-Hyun, a representative from South Korea’s ruling People Power Party, has demanded a parliamentary hearing.

The collapse of the Terra ecosystem started last week after the UST stablecoin started losing its peg with the U.S. Dollar. Since then, the UST continues to de-peg further with the price of LUNA crashing all the way to nearly zero. This has been one of the biggest crashes in the history of the crypto market eroding billions of dollars of investors’ wealth.

Speaking at a plenary meeting of the National Assembly’s Political Affairs Committee, Chang-Hyun said:

We should bring related exchange officials, including CEO Do Kwon of Terra, which has become a recent problem, to the National Assembly to hold a hearing on the cause of the situation and measures to protect investors.

Interestingly, the politician also wants local crypto exchanges to account for the behavior during the crash. Naming some of the crypto exchanges, Chang-Hyun said:

Coinone, Korbit and Gopax stopped trading on May 10, Bithumb on May 11, but Upbit did not stop trading until May 13. Upbit, which was the last to stop trading even after seeing the crash, is the No. 1 company with an 80% share. In just those three days, it earned close to 10 billion won [$7.8 million] in commission income. 

U.S. and South Korean regulators on UST

Soon after the collapse of the UST stablecoin, the Congressional Research Service (CRS) published a report on algorithmic stablecoins. It also points out some key factors in the TerraUSD crash.

The CRS calls this TerraUSD collapse a “run-like” scenario and called out some policy issues. A “run” like situation happens when holders are doubtful of the reserves backing the dollar peg of UST. This results in significant liquidations from investors. This creates a domino effect and destabilizes the financial health of the ecosystem.

The Terra ecosystem collapse has drawn the attention of some of the top levels regulators. U.S. Treasury Secretary Janet Yellen also spoke of the risks involved with algorithmic stablecoins. South Korea’s two biggest financial regulators – Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) – have launched an emergency inspection into local crypto exchanges. Speaking to Yonhap News, a spokesperson for the financial authorities said:

In regards to the Luna incident, we are monitoring the overall situational changes, but there isn’t a direct measure the government can take at this moment. There is no ground for the government to intervene because coin transactions are being freely operated by the private sector.