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Home»ADOPTION NEWS»Chai Payment App Used to Promote Terra Ecosystem Didn’t Use Cryptocurrency: SEC Whistleblower
ADOPTION NEWS

Chai Payment App Used to Promote Terra Ecosystem Didn’t Use Cryptocurrency: SEC Whistleblower

By Crypto FlexsDecember 31, 20233 Mins Read
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Chai Payment App Used to Promote Terra Ecosystem Didn’t Use Cryptocurrency: SEC Whistleblower
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In a new summary judgment, Judge Jed Rakoff of the Southern District of New York ruled that Do-won Kwon and Terraform Labs, a company he co-founded, sold TerraUSD (UST), four cryptocurrency tokens that qualified as unregistered securities. ), Luna

+0.80%
wLUNA and Mirror Protocol (MIR).

Rakoff explained that USTs, which are pegged to a price of $1 and generate no returns for holders, still qualify as securities combined with the Anchor Protocol, a system that pays out nearly 20% returns to UST holders who stake their coins. . . According to the ruling, 14 billion of the 18.5 billion UST token supply were deposited in Anchor by May 2022.

Rakoff ruled in favor of the defendant on one count, dismissing two counts after finding that Terra’s mirror protocol “mAssets,” which mirrors real-world assets such as stocks for trading, did not constitute a security-based swap. .

Chai: Misrepresentation or misunderstanding?

Judge Rakoff also detailed evidence presented by the SEC showing that the Chai payments platform, which Kwon often cited as an example of a real-world use of the Terra blockchain for promotional purposes, was never run on the Terra blockchain in the first place. Instead, payments were reportedly settled using traditional methods and then ‘mirrored’ on the Terra blockchain by servers managed by Kwon.

This evidence includes previously known information from SEC filings along with new revelations, such as a May 2020 email from a Chai employee stating that Chai would “process transactions outside of the blockchain” and then “create records on Terra” . Blockchain in parallel.”

The filing also includes a statement from Chai’s chief product officer, an SEC whistleblower who was told by a former Terraform employee who joined Chai that “there is no cryptocurrency going on within Chai.” The informant also claims that he confronted Mr. Kwon about the identity of Mr. Chai in September 2021, and at the time, Mr. Kwon did not deny the allegations, but rather stated, “I have never said an (expletive) about Mr. Cha.”

Although the evidence appears strong, Judge Rakoff determined that “there remains a substantive dispute of material fact that precludes summary judgment for all parties on the fraud claims.” The dispute arises from the fact that much of the SEC’s evidence comes from whistleblowers, who jurors may find unreliable. Especially since the aforementioned whistleblower tried to extort Kwon Do-do and Terra co-founder/Chai founder Daniel Shin after they were fired from Chai. On defense. There are also elements of the whistleblower’s story that change over time, such as whether he or she had direct knowledge of Chai’s system or simply heard about it from employees.

Chris Amani, Terraform’s current CEO, has been candid about Chai’s use of blockchain in the past in response to similar fraud allegations. Terraform Labs did not immediately respond to The Block’s request for comment.


Disclaimer: The Block is an independent media outlet delivering news, research and data. As of November 2023, Foresight Ventures is a majority investor in The Block. Foresight Ventures invests in other companies in the cryptocurrency space. Cryptocurrency exchange Bitget is an anchor LP of Foresight Ventures. The Block continues to operate independently to provide objective, impactful and timely information about the cryptocurrency industry. Below are our current financial disclosures.

© 2023 The Block. All rights reserved. This article is provided for informational purposes only. It is not provided or intended to be used as legal, tax, investment, financial or other advice.

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