Court documents submitted by the US Securities and Exchange Commission (SEC) reveal that Do Kwon, the co-founder of Terra, admitted to faking trading volume.
The filing in question was submitted on September 22nd and showed a text message exchange between Do Kwon and the founder of the payments app Chai, Daniel Chin.
In the said messages, Do Kwon told Chin that he could create fake transactions that would look real and would generate fees.
Chin had asked him what would happen if people find out the truth and Do Kwon had responded that he would not tell anyone, as long as Chin wouldn’t.
Chai and Terra had entered into a partnership to speed up payments. But, Terra had collapsed in the previous year, and now Do Kwon has been accused of fraud by the SEC.
As a matter of fact, the SEC has alleged in the lawsuit that the partnership was not like anything that has been disclosed to users and that Chai’s payment systems were never replaced by Terra.
This was a rather big allegation, as Daniel Chin, who founded Chai, had also co-founded Terra with Do Kwon back in 2018.
The partnership between Terra and Chai was announced in 2019 in a blog post where it was said that they would be rebuilding the payments stack on the blockchain to simplify the legacy payment system.
It also said that merchants would be able to get a discounted rate in the case of transaction fees. The company had said that the transaction volume would reach millions due to the deal.
According to the SEC, the Terraform blockchain had not been used for processing and settling payments on behalf of Chai.
Instead, it said that the two had simply replicated Chai payments on the Terra blockchain to create the illusion that they were happening on the latter.
In reality, the payments on Chai had been made through the usual methods. Now, the new filing from the SEC has shed some light on the relationship between Terraform and Chai.
The SEC said in the court filing that in the early stages of the Terra and Chai partnership, Do Kwon and Daniel Shin had had extensive private conversations.
In these conversations, Kwon had mentioned that he would use Chai to create fake transactions on Terra and they would seem real and also generate fees.
Terra was a huge crypto ecosystem that comprised numerous apps that were mostly focused on algorithmic stablecoins.
The DeFi blockchain was massively popular and had been the second biggest blockchain after Ethereum. In its prime, LUNA, the blockchain’s native crypto token, had been one of the biggest assets by market cap.
However, Terra collapsed last year in May and this led to a brutal bear market due to which a number of crypto projects ended up filing for bankruptcy.
Since then, a number of charges have been filed against Do Kwon by both South Korean and American authorities.
Earlier this year, he had been arrested in Montenegro for document forgery and he has been detained in jail indefinitely after he was found guilty.