In May 2022, the Terra blockchain was temporarily halted after the collapse of the algorithmic stablecoin TerraUSD (UST) and the cryptocurrency LUNA, an event that wiped out almost $45 billion in market capitalization within a week.
UST stablecoins were not backed by U.S. dollars; instead, they were designed to maintain their peg through a complex model called "burn and mint equilibrium".
[8] Due to such a high yield, some critics raised concerns that Kwon's stablecoin model could function like a "ginormous Ponzi scheme".
[40] The following month, KBS News reported that prior to the collapse of TerraUSD, Kwon had sent 9 billion won (worth USD $7 million) to the law firm Kim & Chang.
[41] On January 21, 2024, Terraform Labs declared Chapter 11 bankruptcy in the United States, listing assets and liabilities in the range of $100-$500 million.
Ltd., the company behind Terra, is incorporated in Singapore but did not submit an application for a licence under the Payment Services Act according to The Straits Times.
[50] On 18 May, the newly appointed Korean Minister of Justice, Han Dong-hoon, enlarged the economic crimes investigation division of the Seoul Southern District Prosecutor's Office, vowing to "track illegal funds and capital transfers, crack down on tax evasion, audit company finances, compile transaction data, and seize the proceeds of criminal financial activity.
[55] In September 2022, a $56.9 million class action was filed at the High Court of Singapore against Do Kwon, Terraform Labs, Nikolaos Alexandros Platias and the Luna Foundation Guard.
[56] In June 2022, Yonhap News reported that 15 people, including former Terraform developers for the Anchor lending protocol, had been imposed with travel restrictions by the Korean government.
After UST’s collapse, which resulted in significant financial losses, Binance came under increased scrutiny for its role in promoting this risky product.
[59] In January 2023, Binance invoked an arbitration clause to block a class-action lawsuit filed in the United States by investors affected by the TerraUSD collapse.
[60] In October 2024, the U.S. Securities and Exchange Commission (SEC) announced a $123 million settlement with Jump Trading, a key partner in the Terra ecosystem.
The SEC alleged that Jump Trading manipulated the market to maintain TerraUSD's (UST) peg to the U.S. dollar, creating the illusion of stability.
Legal experts have drawn parallels to the Madoff case, where banks and intermediaries were held accountable for facilitating fraudulent schemes.
This comparison suggests that exchanges like Binance may face future regulatory actions or lawsuits for their involvement in the Terra collapse.
[61] In December 2022, 15 French investors filed a complaint against Binance France and Binance Holdings Ltd., accusing the company of: - Misleading advertising by promoting TerraUSD (UST) as a "safe and fiat-backed" stablecoin, - Operating illegally without registration as a Digital Asset Service Provider (DASP) with the Autorité des Marchés Financiers (AMF) before May 2022, - Failing to conduct adequate due diligence on listed assets, leading to significant investor losses.