South Korean Authorities Commence Probes Into Terra Crisis

According to local media reports, two South Korean financial agencies have launched emergency inspections into local crypto exchanges in response to Terra’s dramatic collapse. A South Korean parliament member has also reportedly called for a parliamentary hearing on the incident, calling for local exchange executives and Terraform Labs CEO Do Kwon to be brought forth as witnesses.

South Korea Launches Terra Probes

South Korea seems to be zeroing in on the crypto industry following Terra’s historic implosion.

South Korea’s Financial Services Commission and the Financial Supervisory Service have reportedly launched “emergency” inspections into local crypto exchanges in a bid to enhance investor protections following Terra’s collapse, local media outlet Yonhap first reported Tuesday. According to industry sources cited by the newspaper, the two regulatory agencies asked local crypto exchanges to share data on UST and LUNA transactions, including trading volume, price movements, and the number of affected investors.

“Last week, financial authorities asked for data on the number of transactions and investors, and sized up the exchanges’ relevant measures,” a local exchange official reportedly told Yonhap. “I think they did it to draw up measures to minimize the damage to investors in the future,” they said, adding that the agencies had also asked the exchanges to provide a detailed analysis and outline their countermeasures to the incident.

The Terra blockchain, hosting the UST “stablecoin” and native governance token LUNA, was developed by Singapore-based Terraform Labs, a company led and co-founded by Do Kwon. Its algorithmic stablecoin UST began de-pegging from its targeted parity with the dollar around May 8. Despite Terraform Labs and the Luna Foundation Guard’s efforts to backstop the cascade with its Bitcoin reserve fund, UST and LUNA continued plummeting over the ensuing days, erasing about $40 billion in the space of a week.

As a result of the catastrophe, billions of dollars were wiped from the global crypto market, while several reports circulated about investors taking their own lives over the incident. According to Yonhap, around 200,000 South Koreans are presumed to have invested in UST and LUNA, explaining the local authorities’ sudden interest in the incident.

Additionally, another local outlet, Newspim, reported Tuesday that South Korean parliament member Yun Chang-Hyun has called for a hearing on Terra, urging for local crypto exchange executives and Kwon to be brought forth as witnesses. “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,” he reportedly said at a plenary meeting of the National Assembly’s Political Affairs Committee.

Chang-Hyun also raised questions regarding the local exchanges’ conduct during Terra’s collapse, implying that high trading volumes may have incentivized exchanges to keep trading open instead of closing it. “As there is a saying, ‘Even if the coin price falls, the exchange gets fees.’ Upbit, which was the last to stop trading even after seeing the crash, is the number one company with an 80% share. In just those three days, it earned close to 10 billion won [$7.8 million] in commission income,” he said.

Despite the gravity of the situation, local police have said that no civil complaints against Kwon or Terraform Labs had been filed as of Monday, meaning that authorities have still not opened a criminal investigation into the matter.

At press time, UST is trading at around $0.087, while LUNA has collapsed to effectively zero, leaving little room for a potential ecosystem revival. Kwon has put forward a proposal to fork the Terra blockchain and launch a new token, but, perhaps unsurprisingly, the community has overwhelmingly rejected the plan. 

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