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2024-03-28 (목)

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[Exclusive] Do Kwon moved massive stablecoin supplies ahead of Terra crash

  • 입력 2023.03.24 04:45
  • 수정 2023.04.20 09:59

This Digital Asset exclusive is a report on how Terraform Labs (TFL) CEO and founder Do Kwon moved a massive amount of stablecoins before the UST/LUNA crash of May 2022. Kwon made these stablecoin transfers in a five-month period. This report follows up on our initial report published on Jan. 4, 2023.

Kwon transferred USDT (Tether stablecoin) from Hong Kong-based custodian Hex Trust to a private Binance wallet in January, April, and May of 2022. These three transfers totaled 540 million USDT. Hex Trust is also a TFL investor and partner firm.

Digital Asset has concluded that tracking this 540 million USDT would reveal key clues about the UST/LUNA collapse, but these funds are in a private wallet, so it's impossible for anyone outside Kwon and Binance to find out what happened to the stablecoins after the transfers.  

Before Digital Asset's exclusive, nobody knew that Kwon transferred a massive amount of stablecoins before the Terra ecosystem collapsed. When the US Securities and Exchange Commission (SEC) officially charged Kwon with defrauding investors, it didn't include the stablecoin transfers in its accusation.

This is why Digital Asset has continued to track on-chain data related to Kwon's Bitcoin transfers while on the run. We are also working on uncovering the link between Kwon's Bitcoin transfers and the movements of the 540 million USDT.

Kwon has made several Bitcoin transfers between November 2022 and March 2023.

Kwon had 10,296 BTC in a Luna Foundation Guard (LFG) wallet, from which he moved 3,313 BTC to wallets in KuCoin and OKX. The remaining 6,983 BTC was sent to an unidentifiable wallet. Digital Asset reported these movements on Nov. 30, 2022.

South Korean prosecutors then moved to freeze the 3,313 BTC by requesting cooperation from KuCoin and OKX. Among the remaining 6,983 sent to an unidentifiable wallet, around 786 BTC was sent to various wallet addresses.

Digital Asset then confirmed that among this 768 BTC, around 8.1 billion won ($6.18 million) was sent to wallets in crypto exchanges.

As of Mar. 12, 2023, Kwon had 6,197 BTC remaining in the original LFG wallet.

However, Digital Asset has yet to determine whether the 10,296 BTC we have identified is the same 10,000 BTC that the SEC identified in its official complaint against Kwon.

Digital Asset has reached out to the SEC to confirm this link.

Click here for the interview in Korean.

Additionally, on-chain data has also revealed that Kwon transferred 240 million USDT to a private Binance wallet in the months of 2022 which led up to the UST/Terra collapse.

Kwon moved this USDT in two separate transfers. The first was a transfer of 40 million USDT at 9:22 pm on Jan. 28, 2022. The second was a transfer of 200 million USDT at 8:27 pm on Apr. 1.

According to Digital Asset's on-chain data tracking, Kwon sent a total of 540 million USDT to this private Binance wallet in three transfers that occurred from January to May of 2022.  

Digital Asset reported on the first transfer on Jan. 4. On-chain data shows that Kwon moved 300 million USDT from Hex Trust to the Binance wallet at 6:22 pm on May 6. As mentioned before, Hex Trust is a TFL investor.  

 

The on-chain data linked to Kwon's USDT and his TFL wallet can be summarized as follows.

▶Jan. 28, 2022, 9:22 pm: transfers of 40 million USDT

▶Apr. 1, 2022, 8:27 pm: transfers 200 million USDT

▶May 6, 2022, 6:22 pm: transfers 300 million USDT

 

What did Kwon do with all that USDT?

Digital Asset continues to track this 540 million USDT to try and find out what Kwon did with it.

Some experts have suggested that the transfer of 300 million USDT on May 6, 2022, was used to try and restore the UST peg to the dollar.

Normally, shady actors send funds to exchange wallets to cash out. Considering the timing of the transfer, however, it's reasonable to assume that Kwon used the funds in an attempt to restore the UST peg.

In fact, the May 6 transfer of 300 million USDT at 6:22 pm occurred right before the depegging.

 

TFL 커스터디 지갑에서 바이낸스 개인 지갑으로 세 차례에 걸쳐 5억4000만USDT가 이동했다. 출처=센티넬 프로토콜 캡처
On-chain data showing 540 million USDT moving from a TFL wallet to a private Binance wallet. Source: Sentinel Protocol screenshot

 

"At the time, there was a UST/USDT trading pair, so it's possible that Kwon purchased UST using USDT," said Mason Jang, CEO of on-data analytics firm CryptoQuant.

 

Does Binance know where the funds are?

Blockchain experts have concluded that, ultimately, only Binance and TFL know what happened with the funds.

The transfer of 40 million USDT from the TFL wallet to a private Binance wallet in January 2022 also coincides with a UST depegging, although that one was temporary.

The LFG has claimed that it used a Binance account to purchase UST on May 8-10 to defend the UST peg.

The LFG was founded in January 2022 to safeguard the price of LUNA.

TFL은 UST 디페깅을 위해 2억7600만USDT를 커브로 보냈다. 출처=센티넬 프로토콜 캡처
Terraform Labs sends 276 million USDT to Curve to fight the UST depegging. Source: Sentinel Protocol screenshot  

 

There are also traces of TFL trying to correct the UST depegging using a custody wallet and Curve.

On May 8, Terraform Labs sent 276 million USDT to Curve Finance's UST-3 pool and swapped it for Wormhole UST (Ethereum-based UST).

In its Technical Audit Report for November 2022, the LFG claimed that it swapped 276 million USDT for 277,880,000 UST using the UST-3 pool.

 

Questionable claims by the LFG

However, critics have pointed to flaws in claims made by both Kwon and the LFG.

Kwon claimed in June 2022 that he'd made no money outside his TFL salary for the past two years, but on-chain data shows this claim to be false.

"If they gathered the funds to defend the peg, that means they were expecting a depegging incident, which makes things even worse," said Uppsala Security founder Patrick Kim.

"If they didn't use the funds to defend the peg, it's highly suspicious that they sent a large amount of USDT the day before the depegging. Most project insiders and affiliated firms were unaware of the transaction, making it likely that it was shady," Kim added.  

The claims made in the LFG's Technical Audit Report have also come under heavy criticism.

"It's difficult to view the LFG's report as an actual audit report, as it doesn't fulfill the standards of an official audit. It's more of an agreement upon procedure (AUP) deal," said an accountant that specializes in crypto.

An AUP is a standard set by a company or client when it hires an outside party to perform an audit. Thus, the standards for the LFG's audit were set by the LFG.  

"In terms of trust and utility, an AUP audit report is meaningless," the accountant added.  

 

바이낸스. 출처=Kanchanara/Unsplash
Binance. Source: Kanchanara/Unsplash

 

SEC complaint doesn't mention USDT transfer

In its official accusation against Kwon in February 20223, the SEC did not mention Kwon's transfer of 540 million USDT to a private Binance wallet ahead of the Terra collapse of May 2022.

The SEC has claimed that Kwon cashed out over 10,000 Bitcoin via a Swiss bank, but it has never mentioned the USDT transfer.

Digital Asset has contacted Kwon several times to ask him about this transfer, but we have received no response.

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