In May of 2022, the algorithmic stablecoin UST as well as its sister coin Luna collapsed wiping out 60 billion dollars of value at the time. We released this video explaining the mechanics of the Terra Luna ecosystem and how it essentially amounted to a Ponzi scheme which is bound to collapse sooner or later. You can check out this video by clicking the link in the description below. The Terra and Luna coins were created by a company called Terraform Labs which was founded, owned and controlled by a South Korean citizen named Dokwon.

After the collapse, there has been much debate as to whether Kwan was extremely incompetent or one of the world's biggest fraudsters. This question has largely been answered in May of this year when Kwan was arrested in Montenegro after attempting to board an airplane with a fake Costa Rican passport. Additionally The SEC has published charges against Quan and his company Terraform Labs which allege a highly sophisticated scheme to enrich himself by defrauding institutional and Retail investors alike. Tara Luna experienced a stunning Fall From Grace as late as January of 2022, people hailed it as a revolutionary protocol was some of the most well-respected institutional investors buying in.

The billionaire crypto investor Mike Novogratz went so far as to get a prominent Luna tattoo Inked on his Arm based on recently released information. the story of Terra Luna is far more Sinister than we originally knew in this video. We'll take a deep dive into how do Quan created the world's largest ever crypto fraud and how the so-called Smart Money fell for it. a big reason.

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Begin your journey as a smarter investor by clicking the link in the description below. Foreign Terraform Labs was founded by the South Korean Nationals Dokwan and Daniel Shin in 2018. From the beginning, Dokwan was the main decision maker at the company, holding the CEO position and ultimately controlling the company. At risk of repeating ourselves, we won't spend too much time talking about the technicalities of Halitara Luna protocol worked for a detailed explanation.

you can check out our previous video link in the description below. The SparkNotes version is that there were two main coins Tara UST and Luna Terra was an algorithmic stablecoin whose price was theoretically pegged to one US dollar instead of having actual US dollars in reserve. UST was backed by their native cryptocurrency. Luna At any time, you could convert your UST to one dollar worth of Luna coins based on whatever is the trading price of Luna.

Theoretically, each USC coin should always equal one dollar. The main selling point of UST is that you can deposit it into their anchor protocol and earn a risk-free 18 yield. This was obviously very attractive because at the time, most traditional savings accounts offered a less than one percent yield. Eighteen percent returns with no risk is obviously too good to be true and should have immediately raised red flags.

Despite this, Terraform Labs raised 656 million dollars by selling Luna coins to institutional investors, including but not limited to Mike Novogratz's Galaxy Digital, as well as Coinbase Ventures. In order to entice more people to invest, Terraform Labs needed to establish the sustainability of the 18 yield. They aim to demonstrate that the protocol had real world utility to support it. This real world legitimacy came from a company called Chai, an online payments application similar to Venmo or PayPal.

It was founded by Dokwan in 2019 just one year after Terraform Labs Consumers and businesses can use Chai to send and receive Korean won to each other, but supposedly transactions were processed on the back end using Tara's KRW Stablecoin, which is algorithmically pegged to the Korean Won in the same manner that UST has pegged to the US dollar. Here's do Quan giving a public presentation about Chai in 2019. So we launched our payment gateway called Chai about 13 weeks ago and I'm a little bit biased here, but we've been getting some phenomenal progress I Want to talk about first why that's the case? So Chai is actually pretty simple. It just does pretty dumbed down payments Tara settles in six seconds, so every block for every transaction that has been made, we patch it up and then they send it to the merchant so that they can have easy and early access to working capital should they choose to do so.

So in the 13 weeks in which we've been operational, early response has been quite explosive. Up to today, we've had 430 000 uh, Shoppers over the Chai payment Gateway Most of them coming in the last month and we've processed nearly 2 million transactions up to date and we think that this number will continue to grow. And we're quite confident that outside The Fringe use cases speculation in exchange trading, we're going to uh, we're going to catch up to Bitcoin in a matter of a few months and I'm quite confident that we'll pass Ethereum by the end of the year, according to Do. Quan Within the first few months of launching, hundreds of thousands of people in Korea started to use Chai to make retail payments.

These payments were settled using Terra KRW Stablecoin. These transactions generate fees which ultimately support the price of Luna as well as the 18 yield on their anchor protocol. If true, this would be extremely bullish. Tara created the first blockchain system to achieve widespread utilization in a real economy.

We know that Chai was instrumental in the Terra Luna Bolt case because Mike Novogratz, one of the biggest investors in Luna tweeted quote Tara's payment app Chai is up to 80 000 daily active users Koreans are fast adopters watch this grow dollar sign Luna on Guo. Over the following three years, Terraform Labs in Dokwan continued to make statements about how Chai was supporting the price of the Terra ecosystem. In 2020, Terra's official Twitter account touted that Chai had reached 1.6 million users. This was evidence of mass adoption of cryptocurrencies because Chai is powered by the Terra blockchain in May of 2021 1..

they tweeted that as long as we create useful applications that people use on top of Terra, a strong locus of demand will always exist. One of these use cases is Chai, which has more than 2 million active users in Korea as late as March of 2022, Just months before the Terra Luna collapse, Dokwan gave a YouTube Interview talking about how the Chai Payment App allowed users to transact with Terra payments. The problem is, all of these statements were false. Nothing about them was true.

Chai did in fact exist and was used by millions of people in South Korea. It achieved this growth through unsustainably generous user promotions, but importantly, it had nothing to do with Tara Chai settled payments in Korean Won through traditional means. It never used the Terra Krw's stablecoin. Even once Terraform employees likely have the direction of Quan created a computer program which received data about Chai transactions.

It then replicated them on the Terra blockchain using wallets that they controlled. This made it look like Chai was transacting on the Terra blockchain, even though it was not. During this this time period, Chai privately told his own investors that they do not use Tara Stable Coins. Not only that, but using blockchain to process payments in this manner would violate Korean law.

In October of 2022, months after the Terra Luna collapse, Dokwan gave a video interview with the Unchained Podcast, a crypto-focused podcast, and YouTube channel Quan refused to disclose his physical location, claiming that he feared for his personal safety. We now know that he was actively evading law enforcement in the interview. Kwan denies any wrongdoing and attempts to shift the blame on other people. So why did you continue to claim that Chai brought millions of users to Terra during a time when the wasn't true, but that it even couldn't be true because that initial arrangement with Tri had ended.

Okay, so in in terms of Chai terminating its support for the para blockchain, it's actually something a notice that they put out in March 19th of 2022.. So they they put out the post then that they would be terminating Tara support because of lack of usership, right? So um, what is true is that in 2020 Daniel left Tfl that? so Daniel shouldn't Uh, my ex-co-founder left Tfl to focus on Child full time and then I stepped away from Chai, which was a company that I also co-founded to focus on Tfl. In terms of usership, Chai did you know get to 2.5 million users or something in that range? But it is true that in 2021 and I think in 2022 usership had tapered off I I did mention uh from time to time that you know. For example, Daniel Shin was no longer you know working at Tfl and is focusing on China It's not something that we advertised loudly, right? because a lot of it didn't really seem like one of those things that you know really mattered all that much.

I I Considered myself to have been a more act, the more active co-founder in building both of those companies. So in terms of day-to-day operations, it didn't really have that much of an impact. But so why did you continue in 2021 multiple times to say that Chai was bringing 2.5 million users to Terra or that 2.6 million Koreans Use Tara Stable coins for payment? You know, even in March of this year you were saying similar things. Why did she continue to do that? I I Think that's more of a function of me.

You know, having stepped away from Chai and not being part of day-to-day active management or like even really being invited to board meetings, it was, definitely. you know, um, shortfalls on my part there. And so was Chai transaction data visible on a Terra block. Explorer on the Terra blockchain was Terraform Labs Faking that Chai transaction data on the blockchain.

whatever transactions are written to repair blockchain is written by Chai. Quan Appears to be saying that Chai was making transactions with a Terra blockchain up until March of 2022, which we know is not true. He also says that he stepped away from Chai a few years back to focus on Terraform Labs full-time yet he contradicted himself by saying he was the more active co-founder at Chai. His explanations are all over the place, and it's almost impossible to decipher a coherent argument.

Sam Bakeman Freed uses similar strategy. After his Ponzi scheme was exposed, he tried to money the waters and shift the blame to Alameda an entity that he owned and controlled but claimed to not know what was going on there. By making the story as complicated as possible, he hoped to confuse the public and avoid taking responsibility. Thank you! Chai wasn't the only supposed real world application on the Terra blockchain.

They also created the mirror protocol which developed cryptocoins meant to track or mirror the price of financial assets such as stocks. They created a mirrored Apple coin which is meant to track Apple's stock price. Here's how it works: Suppose you want to short shares of Apple and for Simplicity Let's say that Apple's share price is 100. You can deposit 150 of market value or 150 into a smart contract which is Hella's collateral.

If the price of Apple increases to 200, you'll be required to deposit an additional 150 into the smart contract. The collateral always has to equal 150 of the market price. At any time, you can redeem your mirrored Apple coins to get your collateral back, you can sell your mirrored Apple coin to someone else. Eventually, you'll have to buy back the coin to unlock your collateral.

If the price of Apple goes down, the short seller can buy it back at a lower price than you sold it which would yield a profit and vice versa if the price goes up. Imagine if you wanted a short Apple share and you had a friend that wanted to buy Apple shares, you could sign a contract whereby if the price of Apple increases after a period of time, you have to pay him and vice versa. In this way, you could each gain the exposure you desire without ever touching a real share of Apple. This is basically what the Mirror Protocol does.

99 of people would be better off trading Apple shares directly through a regulated broker. This would be far simpler, cheaper, and safer. So what was the use case of mirror and who would benefit from using it Regulators monitor trading activity to identify cases of insider trading and Market manipulation. For example: suppose someone either buys or shorts a large number of Apple shares a few days before their earnings release and always makes a profit.

The SEC will look into this account. if it turns out that the account belongs to an employee of Apple's financial reporting. Department It's highly likely that they are trading on Insider information. If The Insider could instead purchase mirrored Apple tokens on an unregulated offshore exchange, they would be able to profit from insider trading and it would be far more difficult for the authorities to catch them.

Thus, the main utility of the nearer protocol is to Aid and embed Securities fraud. Not Only was the idea of the mirror protocol inherently fraudulent, it was also sloppily designed and prone to hacking. The protocol was hacked multiple times, with at least 92 million dollars being stolen After the collapse of Terra Luna the entire thing fell apart. Whether this was the result of incompetence or intentional manipulation is unclear, but either way it was a complete disaster with unsuspecting investors losing millions of dollars.

Foreign things about Terra Luna is how long it lasted before it collapsed. Given the ponzi-like nature of this game, it's impressive that lasted for more than three years, but this longevity was the result of manipulation in May of 2021. UST briefly dropped below the one dollar pig. It's difficult to see on the chart because it happened so long ago, but the coin fell to an intraday low of 90 cents.

People would only trust the protocol if USC could maintain its pick to the US dollar no matter what. Thus, to keep the fraud afloat, it was imperative to get Ust's price back up to one dollar as soon as possible. So do Quan Called up a Us-based training firm to help prop up the price. The SEC did not disclose who the U.S trading firm is, but according to the crypto media Outlet the blog is Jump trading based in Chicago Jump Trading is a massive trading firm that speculates on both traditional assets and cryptocurrencies.

They have 1 400 employees according to LinkedIn and manage billions of dollars. If they are indeed the unnamed co-conspirator, they will almost certainly face charges of their own and they could very well be forced to shut down. At the request of Dokwon, the U.S trading firm purchased tens of millions of dollars worth of UST on the Open Market. Within days, they were able to push the price back up to one dollar.

Once the Peg was restored, investors regained confidence and the selling pressure was alleviated. In the following days, Dokwan made public statements saying the successful restoration of the one dollar Peg approved the efficacy of the algorithm. Despite the intense selling pressure, the protocol automatically self-healed restoring the peg. Investors took this as evidence that the technology behind the coin was sound, so people poured more money into UST.

Of course, this was a complete lie. The peg was only restored as a result of manipulation. Of course, the accomplice didn't do this for free. Tara compensated them by selling them their newly minted Luna coins for 40 cents each.

While the market price of these coins was ninety dollars, the U.S trading firm made 1.28 billion dollars of ill-gotten gains. As a result, it's important to share that we do not know for sure that Jump Training is the unnamed U.S trading firm, and they have not yet been officially charged with any wrongdoing throughout 2021. In the beginning of 2022, Tara and Luna continued to grow in popularity, reaching a combined market cap of 60 billion dollars. Do Aquan and his accomplices used the illegotten gains from Luna sales to fund lavish Lifestyles for themselves.

They also reinvested some of their funds into marketing initiatives, hoping to draw in even more unsuspecting investors. In February of 2022, Just months before the collapse, they paid 40 million dollars to sponsor the Washington Nationals baseball team in February of 2022. terraform, sold one billion dollars worth of Luna tokens and used the proceeds to buy Bitcoins These Bitcoins would serve as an emergency War chest. In the event that USC depaked from the dollar, they could use the war chest to pump up the price.

In May of 2022, the system collapsed under its own way. The fundamental problem is that the Luna coin is inflationary. As the price of Luna Falls more and more Lunas had to be created to redeem each. UST This created an exponential hyperinflation, whereby the circulation Supply increased to almost 6 trillion.

the price fell from eighty dollars to .0089 Cents By this point, Tara and Luna had grown so big that the one billion dollar War chest was not nearly enough to support the price. It would require tens of billions of dollars to restore the peg more than any trading firm would be willing or able to supply. At this point, Quan finally realized it was game over. so he allegedly withdrew the last remaining 10 000 Bitcoins from the emergency War chest and transferred them to his own personal wallet.

He used a secretive Swiss bank to convert this Bitcoin into 100 million dollars worth of Fiat currencies and began his life as an international fugitive. During his time as a fugitive, he remained active on social media and even gave a few video interviews without revealing his location. He created a new coin called Terra which was distributed to existing Luna holders. There was no stable coin associated with the new Tarot coin and it's unclear what utility it could ever have.

Unsurprisingly, the coin has lost over 90 of its value since its launch. Dokwan's whereabouts were finally ascertained in May of 2023 when he attempted to board a plane in Montenegro using a fake Costa Rican passport. Both the U.S and South Korea want to extradite him South Korean Prosecutors have publicly stated that they'll seek a prison sentence in excess of 40 years. If he is still alive at that time, he could be extraded against the U.S on additional charges.

and before he can even be extradited to the U.S or South Korea he will first stay on trial in Montenegro for attempting to use a fake passport. This carries a maximum five-year prison sentence. All Things Considered is extremely unlikely that he will ever spend another day outside of a jail cell. Yeah, the saddest part of the Terra Luna Ponzi scheme is of course, the thousands and possibly tens of thousands of individual investors who lost their life savings.

But the most surprising part of the fraud is how many institutional investors fell for it as well with the likes of Mike Novograts and Coinbase. Ventures Having bought in, one of the reasons that Tara was so seductive is because they claimed to be the first blockchain project to gain Mass adoption in the real economy with their Chai Payment app. The main bare case of cryptocurrencies is that they have no real world utility and are only used by speculators and cyber criminals. Crypto: Bulls Like Mike Novograds have their entire reputations at stake, they desperately want to prove that crypto has real world applications.

No. Quan came along telling them exactly what they wanted to hear. If you want something to be true, you're more likely to believe it even with limited or no due diligence. Even after Tara was exposed as a fraud, the Crypto Bulls never gave up on their attempts to create real world applications.

Coinbase currently finds itself in an existential battle with U.S Regulators who claimed that is illegally operating as an unregistered Securities Exchange If they lose in court, it could mean the end of the company. If you want to learn more about Coinbase's legal woes, you can watch this video we made about it a few weeks ago. Link in the description below. In a desperate attempt to gain public support, Coinbase launched a PR campaign called Update the Financial System.

The goal of this campaign is to Showcase real world use cases for cryptocurrencies and Nfts. For example, they flew one of their employees all the way to Japan to interview a woman who is using Nfts to preserve rural Japanese culture. She created a fake rural Village in the Metaverse so that people from the cities can see what the rural Villages are like. You can also buy Nfts to show your support for the village.

The problem is all this could be accomplished without crypto. The Metaverse Villager itself has nothing to do with crypto, and if people want to show their support to the project, they could just donate money through PayPal or dozens of other traditional payment methods. Adding Nfts adds nothing to the project. They also went to Mozambique to visit a property development which uses Nfts to securitize mortgages.

The mortgage can be split up and sold to investors and the mortgage payments are made to the Nft. The only Innovation is that the company originating these mortgages has far less stringent credit standards than traditional Banks and is willing to give mortgages to people without regular incomes if someone misses their mortgage payment. The Nft doesn't solve anything. They're just using Nfts as a giving to raise money for mortgages deemed too risky by traditional.

Banks I Expect this project to end in disaster with massive losses for their investors. The fact that Coinbase had to dumpster dive with these two examples exposes that there are no real world use cases for crypto. They are both legitimate and significant. Alright guys, that wraps it up for this video.

What do you think about Dokwon? What do you think would be a fair prison sentence for his alleged crimes? Let us know in the comments section below. As always, thank you so much for watching and we'll see in the next one. Wall Street Millennial Signing out.