The investigation into the Terra blockchain debacle is not over. South Korean financial regulators are still looking into the ecosystem. According to recent reports, the Asian regulatory agency is already considering putting the once-popular blockchain to the test.

A Security or Not? Howey to the Rescue

The Terra blockchain largely contributed to the crypto space’s bittersweet 2022. Terraform Labs was in charge of the now-embattled Terra Classic blockchain, which still hosts the fallen crypto favorites Luna Classic (LUNC) and the algorithmically generated stablecoin TerraUSD Classic (USTC).

The loss of over $40 billion in investor funds has been difficult for investors and regulatory agencies to ignore, and according to local news reports, the LUNC and USTC would be investigated to ascertain if they possessed security characteristics.

According to Yonhap, the investigation will be conducted under South Korea’s Financial Investment Securities and Capital Markets Act. According to Koo Tae-on, a legal advocate at Lin, this new development will help the prosecution deal with the issue of unregulated securities given to investors. If this is true, Tae-on believes it would be a major violation of the capital markets act.

To put things in context, prosecutors are currently considering similar overseas cases and the famous Howey Test popularized by the US Supreme Court. The Howey Test determines whether an instrument is a security or not by examining whether an “investment contract” scenario occurred in which Terraform Labs’ founders, Daniel Shin and Do Kwon, received investors’ money with the promise of profit in the later stages.

The Terra Blockchain Flames Rising Higher

No scenario is being ruled out, as recent events show. According to a recent Bloomberg report, a South Seoul court has issued an arrest warrant for Do Kwon – one of the major faces behind the crypto write-off.

As recent events demonstrate, no scenario can be ruled out. According to a recent Bloomberg report, a South Korean court has issued an arrest warrant for Do Kwon, one of the main figures behind the crypto write-off.

Kwon joins a list of five other people whose names are on the warrant for violating capital market rules. All six people are currently residing in Singapore, a neighboring Asian country.

Kwon has repeatedly stated that his migration has nothing to do with the failure of his algorithmic project in May. According to him, the decision was motivated by concerns for the safety of his young family. In addition, the blockchain developer stated that no regulatory agency had contacted him.

The indirect impact of Terra blockchain’s collapse has been felt throughout the crypto market, as its $40 billion annihilation forced the crypto industry into a forced bearish struggle following a slow start to the year. Celsius, a cryptocurrency lending platform, lost a significant portion of its investments shortly after USTC lost its dollar peg, dragging the now-LUNC down the abyss. Others, including Voyager Digital and Three Arrows Capital (3AC), have had their fingers burned. All three have since declared bankruptcy and suffered losses totaling millions of dollars.

Investors Want a Pound of Flesh

Early Terra blockchain investors are still reeling from unforeseen events. According to a class-action lawsuit filed in June in the US District Court for the Northern District of California, investors accuse the blockchain protocol of making misleading statements to entice investors to invest in its project. Plaintiff Nick Patterson alleges that the founders sold unregulated securities to the investing public.

However, the US Securities and Exchange Commission (SEC) has not remained silent. Do Kwon’s appeal was denied in a June ruling on a US court judgment. The appeals court ordered Terraform Labs’ founder to cooperate with the top US financial regulator to investigate the company’s decentralized finance (DeFi) synthetics platform, Mirror Protocol.

Mirror Protocol enables users to trade simulated versions of company stocks and shares. The Platform is based in South Korea, but its offering of synthetic shares in US-based companies has piqued the SEC’s interest.

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