South Korean authorities are moving to freeze the assets of the Luna Foundation Guard. The Luna Foundation Guard is a nonprofit organization that maintains reserves for the Terra ecosystem to support its stablecoins during times of stress.
Are they running off with the money?
We all remember how that ended. Terra’s UST stablecoin lost its peg to the US dollar, triggering the collapse of the entire ecosystem. Billions of dollars and the savings of thousands of investors evaporated.
Now South Korean police appear concerned that the Luna Foundation Guard might abscond with funds, prompting them to request exchanges to freeze related assets. Under current law, exchanges are not strictly required to comply with such requests, so whether they will do so remains uncertain. At first glance it seems likely many will cooperate — responding to authorities helps demonstrate good faith and protect users, while also signaling cooperation with regulators.
Why the police made the request
The South Korean police opened an inquiry into the Luna Foundation Guard after receiving reports of potentially irregular handling of funds. However, the likelihood that the foundation is actively planning to misuse assets appears low. Do Kwon and his associates are already known to Korean authorities, which would make any escape difficult. In such cases, additional evidence tends to surface over time and could bring those responsible into the sights of prosecutors.
The question is whether authorities want to add this investigation to the long list of issues already surrounding the Terra collapse. Several investors have already filed lawsuits against Do Kwon and co-founder Daniel Shin for losses, and other plaintiffs are preparing separate legal actions. The intense scrutiny around Terra means any questionable behavior would be highly visible and a risky choice for those involved.
South Korean regulators visit major exchanges
Authorities in South Korea have already visited major exchanges this week to press for more information. The visits included platforms such as Upbit, Bithumb, Coinone, Korbit and Gopax. Officials are likely to question exchange staff to determine whether these platforms bear any responsibility for investor losses. In this regard, regulators appear to view responsibility as not lying solely with investors.
If this becomes a formal issue, exchanges may face increased scrutiny over which tokens they list. That could create challenges for many crypto projects in the near future. “In any case, we will urge exchanges to implement investor protection policies,” said Yoon Chang-hyeon, chair of the digital assets committee of the People Power Party.
During the Terra collapse, Coinone suspended trading in LUNA. Korbit and Bithumb both warned users against investing in the project. The outstanding question for authorities is whether those actions were sufficient and whether exchanges took adequate steps to protect investors.