September 28th, 2022
In todays MexicaNFTimes, we’re looking into some great stories and articles:
The Story of Do Kwon and the Biggest Crypto Crash in history (~45 Billion USD)
Japan to Toughen Remittance Rules to Fight Money Laundering Using Crypto
Who is Do Kwon? And What Happened to Him and +45 Billion USD?
In May, one of the biggest cryptocurrencies crashed in a matter of seconds wiping more than 45 Billion United States Dollars in market capitalization and wiping people’s investments. This is a short article explaining how this happened.
Terra Blockchain is (¿was?) a protocol and payment platform used for algorithmic stablecoins (stablecoins essentially are cryptocurrencies pegged to a reference asset such as the dollar). Stablecoins aim to provide stability and security in transactions while reducing volatility, posing themselves as some of the biggest competitors within the crypto and blockchain scene. Yet, in May 2022, Terra, the third biggest stablecoin by market capitalization went to virtually nothing over the course of 5 days.
The Terra project, launched in 2018 by Do Kwon & Daniel Shin; and through this technology, LUNA and TerraUSD cryptocurrencies were empowered. For the consensus mechanism, they redefined proof-of-stake in its own way, and enabled an ecosystem of Dapps as well
The stablecoin was designed to mantain its peg through a complex model called “burn and mint equilibrium”. The equilibrium used a two-token system: 1.- Luna: Designed to sustain volatility; 2.- Terra: Designed as stable backing and giving voting rights on Terra community proposals.
Way back in 2018, Terra started off as Terraform Labs, which raised more than $200 million from investment and capital venture firms. Each co-founder started with 50% voting power, yet Shin was later diluted by Kwon.
The questions began when the staking protocol began giving ~20% yield, which was significantly higher over different staking protocols and raising some suspicion. Some even started calling it a “ginormous ponzi scheme” and even within the Terra holders community, they started asking for an audit of the Terra coin reserve.
The meltdown began May 9th when the UST began to break its peg to the dollar. Terra announced that they would keep a close 1:1 parity with the USD through diversified reserves in different currencies.
Investor concerns quickly built up in Terra’s Anchor Protocol used for lending and borrowing protocol built on the chain as well as the Mirror Protocol which designed and offered financial derivatives that “mirrored” real listed stocks.
Over the next week mass withdrawals from Terra threw the price of the stablecoin below 10 cents. During the collapse, holders converted Terra into Luna via the mint-and-burn system, which caused the price of Luna to collapse due to its increased supply. Luna went to virtually nothing.
This whole chain of events destabilized the crypto-market fueling concerns in investors, dropping confidence, lowering crypto prices and strengthening regulation
Even though its creator stated that he would not run and face the music. He recently changed his mind. Do Kwon has been recently included in the Interpol’s red-list making him a fugitive in over 195 countries.
Japan to Toughen Remittance Rules to Fight Money Laundering Using Crypto
The Japanese government is planning to introduce new rules for remittances directed at stopping criminals from using cryptocurrency exchanges to launder money, according to a Nikkei report.
The rules will require exchanges to share customer information – including customers' names and addresses – when they transfer crypto between platforms. The move is intended to provide Japanese authorities additional monitoring capabilities to track money transfers by people engaged in illegal activities. Violators could face corrective orders or criminal penalties, according to the report.
Japan's Act on Prevention of Transfer of Criminal Proceeds will be amended to include the new remittance rules. A draft amendment to the law will be submitted to a parliamentary session scheduled for Oct. 3 but the rules are expected to take effect in May 2023, the report said.
Japan's cryptocurrency exchanges have been in negotiations with the government about sharing customer information since last March, when Japan’s Financial Services Agency (FSA) ordered exchanges to implement a framework to fulfill the travel rule, which encapsulates the recommended anti-money laundering norms for crypto by global standard-setter Financial Action Task Force (FATF). Exchanges have noted concerns about heavy compliance costs.
The law will also apply to stablecoins, a type of cryptocurrency tied to the price of another asset – like the U.S. dollar or gold – to stabilize the price.