SEC Exposes Alleged Deception Between Terra’s Do Kwon and Chai’s Daniel Shin

Key Insights:

  • SEC exposes chat suggesting Kwon’s plan to create deceptive transactions.
  • Legal battles intensify as SEC seeks Kwon’s extradition from Montenegro.
  • Terra-Chai alliance under scrutiny after the short-lived partnership ended in 2020.

The U.S. Securities and Exchange Commission (SEC) has recently brought to light a series of chat exchanges between Do Kwon, the founder of the now-defunct Terra blockchain, and Daniel Shin, CEO of the Chai payment app. These conversations, which trace back to 2019, suggest a potential plot to deceive investors through the creation of fabricated transactions.

Unraveling the Deceptive Blueprint

According to the SEC’s court filing on September 22, 2023, Kwon proposed a plan to Shin: “I can just create fake transactions that look real…which will generate fees.” Shin, initially hesitant, questioned the potential fallout if their scheme was discovered. Kwon confidently replied, “All the power to those that can prove it’s fake… because I will try my best to make it indiscernible. I won’t tell if you won’t.”

However, after some deliberation, Shin warmed up to Kwon’s proposal, suggesting they first test the waters on a smaller scale to gauge its feasibility and potential risks.

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The SEC further alleges that Terraform Labs, under Kwon’s leadership, collaborated with Chai in 2019. This partnership purportedly enabled the app to finalize transactions on-chain. In stark contrast, Chai’s payments were traditionally executed. The duo allegedly mirrored these Chai payments onto the Terraform blockchain, giving the illusion of on-chain transactions. This misleading representation led investors to purchase vast amounts of LUNA and other tokens under the belief that these Chai transactions were genuinely executed on the Terra blockchain.

Extradition and Ongoing Legal Tussles

Following these revelations, the SEC has sought the extradition of Do Kwon from Montenegro. Kwon had previously faced incarceration in this country for falsifying travel documents. However, Kwon’s legal team has countered this request, arguing that such a move would hinder Terraform Labs from presenting Kwon’s statement during the summary judgment phase, potentially affecting the case outcome.

Although the partnership between Terraform Labs and Chai was short-lived, ending in 2020, the SEC contends that it persisted long enough to effectively execute their alleged deceptive strategy.

A Deeper Dive into the Terra-Chai Alliance

Back in 2019, Terraform Labs proudly announced its alliance with Chai. The primary objective of this collaboration was to overhaul the Terra blockchain’s payment system. They aimed to simplify the existing payment infrastructure, making it more efficient and offering reduced transaction fees to vendors. Additionally, the partnership sought to integrate Terra’s Korean won-pegged stablecoin, KRT, into the Chai payment application, further enhancing its utility.

However, this association was severed when Shin took a different direction, founding Chai Corporation in 2020. This move led Chai to operate autonomously, independent of its previous ties with Terraform Labs.

The crypto community is abuzz with discussions and speculations after these revelations. The once-prominent Terra blockchain and its founder, Do Kwon, are under intense scrutiny.