The issuer of the recently plummeted Korean cryptocurrencies Luna and TerraUSD (UST), Terraform Labs, is once again drawing attention for having pre-issued approximately 1.5 trillion won worth of cryptocurrency without informing individual investors. [Image source=Yonhap News]
[Asia Economy Reporter Hwang Sumi] The recent collapse of the Korean virtual currencies Luna and TerraUSD (UST) has brought renewed attention to the fact that Terraform Labs, the issuer, had pre-mined approximately 1.5 trillion won worth of cryptocurrency without informing individual investors.
On the 11th, Yonhap News, citing the virtual asset industry, reported that Terraform Labs pre-mined 1 billion TerraSDR (SDT) tokens linked to the International Monetary Fund's (IMF) Special Drawing Rights (SDR) when launching its mainnet in April 2019.
This amount corresponded to 1.56 trillion won at the exchange rate at the time. According to the report, Terraform Labs agreed to issue this amount over 10 years under the condition that it would own the tokens.
The pre-mining was reportedly shared only with a small number of institutional investors, with most individual investors unaware. Typically, cryptocurrency developers disclose the total supply and issuance schedule through whitepapers or disclosure sites. However, the whitepaper issued to attract investors at the time only contained information about the operation principles of the Luna and Terra ecosystems, with no mention of the pre-mining.
As a result, the information was not publicly known until it was first revealed in November 2020 by the cryptocurrency media CoinDesk Korea.
Following this, controversy arose over Terraform Labs not disclosing the large pre-mined amount, with accusations that it deceived general investors. Industry insiders noted that if the actual issuance volume was only disclosed to institutional investors, it would constitute deception against general investors, and if profits were gained through this, it could amount to fraud.
In response to the controversy, Terraform Labs explained in its company-operated Discord chat rooms that the pre-mined amount had been discussed. Additionally, the company belatedly posted related disclosures on the U.S. virtual asset disclosure platform Messari in November 2020. At that time, the company stated, "To strengthen the Terra stabilization mechanism, 1 billion SDT were issued at the genesis block (the first block created in the blockchain)."
Terraform Labs claimed that the pre-mined SDT was intended to be used as management fees to maintain the stablecoin’s price stability within the Terra ecosystem. However, until now, the specific use of the pre-mined cryptocurrency has not been confirmed.
The matter is currently under review by the Seoul Southern District Prosecutors’ Office Joint Financial and Securities Crime Investigation Unit. The unit is also investigating cases related to Terraform Labs CEO Kwon Do-hyung, who has been sued and accused by investors who suffered losses from the Luna and Terra collapse. It is expected that they will examine whether the pre-mining constitutes fraud and where the issued cryptocurrency was used at the time.
Meanwhile, the U.S. Securities and Exchange Commission (SEC) has recently launched an investigation into CEO Kwon regarding possible violations. According to local media such as Fortune on the 9th (local time), the SEC is investigating whether Terraform Labs violated consumer protection laws during the marketing of UST. SEC enforcement lawyers are examining whether Terraform Labs breached regulations related to securities and investment products.
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