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This isn't Do Kwon's first rodeo. Before UST took off, back in 2020, Terra's first big initiative to defraud retail was a lot more obvious - far less elegant and way more clunky. Clearly, they learned a lot, as their next endeavour made billions more. Let's dig in... pic.twitter.com/PcOa0CCArY
A lot of this thread talks about information from an article from CoinDesk Korea as well as some supportive sources and corroborative testimony from TFL and ex-TFL employees. Here's the article link - translate it into English and follow along. https://www.coindeskkorea.com/news/articleView.html?idxno=72041 … (1/17)
Here's how the scam worked: Terra secretly premined $1.4b in SDT (an IMF currency basket of other major world currencies). The stabilization method was identical to UST, but this time, Terra had massive control over the SDT reserve and could do with it as they pleased. (2/17)pic.twitter.com/t2aZhGuFoo
Do Kwon never mentioned the premine in the whitepaper. He never put out articles on news sites about the premine existing. His justification? "We told people in the Discord, bro." As you see, misrepresenting the reality of market setups is a very common theme within Terra. (3/17)pic.twitter.com/4UN1SD6W9q
Of course the VC funds like Hashed (and maybe Jump) were told about this secret allocation behind the scenes. Asymmetric information is the name of the game. If you can convince retail a project is safer and has less selling pressure than it actually does, you can hit big. (4/17)pic.twitter.com/p7fZC675jp
Now, the question most of you might be wondering: how did Do Kwon manage to cash out SDT? Surely there would need to be some system to launder it, since he just can't sell it and put it back into his pocket like he does with LUNA today, right? Let's talk about Chai. (5/17)
At the time, Daniel Shin was closely wrapped up with Chai, so Do Kwon decided to turn it into his personal money laundering machine. All he had to do was create the illusion of retail demand and then publicize the narrative that KRT was being used everywhere. (6/17)pic.twitter.com/mfHde6Xy4b
A cheeky little system was set up: when SDT is burned, Terra's KRT (a KRW stablecoin) can then be issued to stores through Chai. This can now be cashed out off-platform via an exchange. As long as there's enough retail volume to mask it, it'll go unnoticed. (7/17)pic.twitter.com/zEhcrp33Do
But it didn't go unnoticed, because the volume was fake. Do Kwon and @novogratz constantly pushed the narrative in 2021 that Chai x Terra was being used by millions - they couldn't fake the data, though. Check out KRT's daily volume during 2021. https://coinmarketcap.com/currencies/terra-krw/ … (8/17)
You'll notice weeks of radio silence with daily trading volume well under $50k (some days it's under $5k), but through May 2021 and some other weeks, there were magical spikes where retail was 'organically' using KRT, creating $100k-$200k of daily volume. Wow! (9/17)
While there was some genuine Chai usage, the vast majority of it was simply TFL cashing out tens of millions of dollars through the SDT/KRT scheme, hoping nobody would notice. It was a way of turning their printed internet money into real money - retail demand. (10/17)
As we have discovered, this scheme requires constant demand to stay afloat, and at some point, it falters. Estimates suggest over $150m was unaccounted for from the SDT stabilization pool, and it was operating on a fractional reserve. LUNA was on a path to collapse... (10/17)
...But their next trick turned out to be far more powerful, and it saved the day. More demand. Better ways to launder (print LUNA and don't explain where it's going). A smarter way to shill, defraud, and deceive, all with big partners and investors helping you out. (11/17)
When a scam is exposed but you want to continue defrauding people, there are three things to do. First - you need to misdirect - create a new project, promise it will be more successful, get people hyped up. Second - you need to hide evidence. Third - do it a lot smarter. (12/17)
So, this is what they did after the Chai premine event. The first step was to dissociate from Chai, severing ties on their website. The next step? Delete the evidence. Chai's blockchain explorer with all of their transactions was taken down. https://www.chaiscan.com/ (13/17)
The last, most important step - refine your technique. Instead of cashing out in such an obvious way, do it using protocol-level deception. Clever lies. Secret allocations and shadow wallets. Have arbitrary amounts allocated for 'team expenses' and 'infrastructure'. (14/17)
Create a better, more robust structure to bring in a tidal wave of retail demand - not just from Korea, but from the whole world. Market it as a savings account, so people throw in not just a small investment but their life savings. Generate as much volume as possible. (15/17)
I could go on - but the point is, if this was a middle school awards ceremony, Do Kwon wins the award for 'most improved'. Most improved scammer. The UST scheme robbed people of billions and was far more elegant & deceptive than the Chai premine scam. (16/17)
Here's the thing: scammers are never satisfied. Psychopathic greed is bottomless. The next scam will come. It may have a similar pattern. Be careful - remember the steps - the scam will be far smarter this time. Watch everything closely. Thank you for reading. (17/17)
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