LUNA pain returns in South Korea as Do Kwon is arrested

Investors, mostly South Korean and backers of the LUNA project, still want Do Kwon extradited to the US because the punishment would be more appropriate.

Do Kwon being escorted by Montenegrin police. Photo: New York Times .

The LUNA crash wiped out more than $60 billion , leaving the cryptocurrency market devastated. According to local news agencies, the number of South Korean victims is around 200,000.

“Even my grandfather knows about LUNA,” said Sung Mo Park, business and development manager at Polygon Labs.

Once a country that supports digital currency

According to CoinDesk , Terraform Labs is based in Singapore, not South Korea. However, Terra is a project that was once highly regarded in Do Kwon’s home country. “Do Kwon is a young leader who is making global breakthroughs. He is a role model for crypto company founders in Korea,” said Jiyun Kim, CEO of DSRV.

“Koreans don’t think their country can go global. There are two ‘stars’ who have broken that mindset, boy band BTS and Do Kwon,” said Lloyd Lee, CEO of Hyperithm, a digital asset management company based in Seoul.

LUNA once skyrocketed to nearly 120 USD/coin before losing all its value.

The South Korean government was once a crypto-friendly government. Until LUNA’s collapse, crypto regulations in the country became increasingly strict. According to CoinDesk , LUNA’s collapse was also politically influenced.

In the 2022 presidential election, candidates have all come up with crypto-friendly policies to “win over” younger voters. Current South Korean President Yoon Suk-Yeol has pledged to limit taxes on cryptocurrencies and allow initial coin offerings (ICOs). Yoon took office in May 2022. That same month, Terra collapsed.

“The Korean government could not support cryptocurrencies when LUNA collapsed, investors lost money and companies went bankrupt. So the policy became stricter,” said Lloyd Lee, CEO of Hyperithm.

Law on risk prevention

According to CoinDesk , lawmakers began drafting the Digital Asset Basic Act (DABA) in early 2023. The bill includes 17 draft laws focused on protecting investors. None of the bills have yet been passed.

“We introduced some new laws on cryptocurrencies when the new president took office. But so far there are no new regulations, only discussions in the National Assembly ,” said Jongbaek Park, a partner at Bae, Kim & Lee.

President Yoon Suk-Yeol allows ICOs, treats cryptocurrencies as securities. Photo: Nikkei Asia .

Currently, the focus of cryptocurrency regulation is mainly on preventing money laundering and terrorism financing. South Korea's Anti-Money Laundering (AML) Act was amended in 2020. At the same time, South Korean cryptocurrency exchanges are required to conduct know-your-customer (KYC) verification and report suspicious transactions.

“The Korean government tends to prioritize risk mitigation such as investor protection and market stability over innovation and development of the cryptocurrency community,” said Jongbaek Park.

According to CoinDesk, Do Kwon’s arrest has once again prompted the South Korean government to look at the legal framework for cryptocurrencies. The country’s new cryptocurrency bill will be considered in May. The bills include deposit guarantees, information security, and prohibitions on market manipulation and illegal trading.

Recovering Do Kwon's Illegal Profits

On April 4, KSB, a local broadcaster, reported that prosecutors had asked Binance to block all cryptocurrency transactions by Do Kwon. Authorities estimated that they had recovered 414 billion won (about $314 million ) from the Terra executive's assets. Do Kwon's assets accounted for about $69 million .

“Prosecutors are scouring assets in South Korea, seeking to recover profits Do Kwon earned from Terra,” authorities said in the report.

Do Kwon was arrested on March 23 at the airport in the capital Podgorica. Photo: BBC

Prosecutors have now filed a request to seize the proceeds from the sale of the Terra executive's apartment in South Korea. At the same time, prosecutors said Do Kwon does not own any assets in the country, making it difficult to seize the assets.

“It appears that Do Kwon sold the assets and converted the money into Bitcoin,” authorities said.

The funds were then transferred to external exchanges. Binance is a suspect because it is the world's largest exchange. Prosecutors want Binance to freeze wallets linked to Do Kwon. Binance confirmed to CoinTelegraph that it will assist the South Korean government in its investigation.

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