Authorities pledge to introduce legal safeguards amid Luna debacle

Rep. Yoon Chang-hyun of the ruling People Power Party, left, talks with Rep. Sung Il-jong of the same party, center, during an emergency seminar held to discuss ways to ensure protection of cryptocurrency investors amid the recent collapse of the controversial Luna token, at the National Assembly in Seoul, Tuesday. Joint Press Corps-Yonhap

Prosecution looks into Terraform Labs' co-founder Do Kwon

By Lee Min-hyung

Financial authorities and the government are moving to introduce legal safeguards in the cryptocurrency industry by strengthening supervision on exchanges to prevent a recurrence of the recent collapse of the troubled stablecoin Terra and its sister token Luna.

"We need to make exchanges play their proper role, and toward that end, it is crucial for watchdogs to supervise them thoroughly," Rep. Sung Il-jong of the ruling People Power Party said during a National Assembly emergency seminar, Tuesday. "When exchanges violate rules, they should be held legally responsible to ensure that the market functions well without any troubles."

The two-day-long meeting, which ended Tuesday, was designed to discuss countermeasures against the recent financial fiasco surrounding the two cryptocurrencies. About 280,000 Korean investors are estimated to have fallen victim to the abrupt plunge of the once-promising coins.

But as the industry is not regulated by any financial watchdogs, many critics have called for the need to introduce regulatory measures in no time.

Luna's market capitalization once surpassed 50 trillion won during its heyday last month, but its value nosedived to near zero in about a week in mid-May after Terra failed to defend its intended $1 peg.

Leaders of the nation's top five exchanges also attended the meeting along with ranking officials from the government, including Financial Services Commission Vice Chairman Kim So-young.

"We are going to build close ties with the Ministry of Justice, the prosecution and police, in a bid to monitor any illegal acts in the industry and protect investors' rights," Kim said during the seminar.

With the Luna scandal making global headlines, investigative authorities have been looking closer at Terraform Labs, the developer of the two controversial cryptocurrencies. According to the Seoul Metropolitan Police cyber-crime unit, the authority requested freezing of assets from one of the firm's employees suspected of embezzling corporate capital.

The prosecution is also looking into whether Terraform Labs' co-founder Do Kwon, also known by his full Korean name Kwon Do-hyung, has engaged in any fraudulent acts targeting investors of the now-dead Terra stablecoin and Luna.

Last week, LKB & Partners, a Seoul-based law firm representing victims of the latest Luna fiasco, sued Kwon and the firm's other co-founder Shin Hyun-sung at the Seoul Southern District Court.

But given the legal ambiguity surrounding the crypto industry, it remains unclear whether investors of the Terra ecosystem will be able to receive any financial compensation from the company.

As Luna was once considered one of the most promising altcoins in the global cryptocurrency industry, the rapid collapse of the Terra ecosystem has in recent weeks accelerated the downfall of major cryptocurrencies such as Bitcoin and Ethereum.

According to data from CoinMarketCap, Bitcoin prices fell by around 30 percent in less than three weeks. Bitcoin was traded at as high as 50 million won as of May 5, but it tumbled to around 37 million won on Tuesday.

This was sparked in part by the Luna shock starting May 9. With Luna's valuation falling to near zero in less than a week, overall investor sentiment plunged without any signs of bouncing back in the following weeks.

The head of the International Monetary Fund (IMF) also shared a message of warning against investing in cryptocurrencies similar to Luna. According to CNBC, IMF Managing Director Kristalina Georgieva called the Terra ecosystem a "pyramid," as it was not backed with assets, only promising to deliver 20 percent returns.

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