Terra creator Do Kwon faces prosecutions in South Korea

Do Kwon, the creator of the stablecoin TerraUSD (UST) and its sister token Luna, is facing legal prosecutions in South Korea over the collapse of the two coins that have wiped billions of dollars off investors around the world earlier this month.

The Seoul Southern District Prosecutors’ Office said Friday that it has kicked off an investigation on Terraform Labs, the organization behind the stablecoin project Terra led by Do Kwon, and assigned the case to its Financial and Securities Crime Joint Investigation Team, a special financial crimes unit brought back recently by the newly appointed justice minister Dong-hoon Han, according to local media.

The announcement came a day after five Korea-based crypto investors with combined damages of 1.4 billion won (about $1.1 million) filed criminal complaints against Kwon and his Terraform co-founder Daniel Shin over charges of fraud and other violations of financial regulations.

South Korea’s financial authorities estimated that about 280,000 users owned a combined amount of 70 billion Luna in Korea.

“The design and issuance of Luna and Terra to attract investors, but the failure to properly inform them about the flaws, and the unlimited expansion of Luna’s issuance amounted to defrauding investors,” said a representative from LKB & Partners, the law firm hired by the five investors bringing charges against Terraform Labs.

Do Kwon is also reportedly facing a tax fine of 100 billion won ($78 million) for evading corporate and income tax payments.

UST, which was once one of the most promising stablecoins, depegged from its $1 value last week and has since dropped to $0.079. Rather than being backed by fiat money or real life assets like some other stablecoins, the value of UST is maintained by “burning” its sister token Luna. The price of Luna has plummeted over 99% since last week.

The Block first reported Terraform Labs’ in-house legal team has resigned in the wake of the UST and Luna collapse.

Terraform Labs is incorporated in Singapore but was registered to operate its business as Terraform Labs Korea in South Korea

HashiCorp’s IPO filing reveals a growing business, but at a slower pace

HashiCorp filed go public this week, becoming the latest addition to our growing roster of expected fourth-quarter IPOs.

The cloud infrastructure unicorn presents an interesting mix of open source and proprietary code, with recurring revenues and a nascent hosted product.

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To understand HashiCorp’s performance, we’ll need to spend a minute talking about how it approaches the market. If you are a fan of open source software (OSS) or curious how companies with a core of open code make money, it should be an interesting read.

In very broad terms, HashiCorp grew about 50% in its most recent quarter from a year earlier, but with narrower losses. The company has reached nine-figure revenue scale, meaning that the unicorn worth some $5 billion or so back in 2020 is going to make a splash when it lists.

No more throat-clearing, let’s talk OSS, how it shakes out into a business model, and how strong HashCorp’s historical results appear through this July.

HashCorp’s open source approach

When we wrote above that HashiCorp is a cloud infrastructure company, we meant it. It has built a suite of tools that help other companies manage cloud applications (Terraform), keep them and their data secure (Boundary, Vault), handle networking on a granular level (Consul), and deal with orchestration and cross-platform deployment (Nomad, Waypoint).

That’s an incredibly brief overview, but it should give you an idea of the breadth of the software that HashiCorp has built over the course of its life. We expected a good amount of code, frankly; this is a company going public after all, not some middling Series C startup with hopes of one day growing into a unicorn price.

Here’s where things get fun. Per the company’s S-1 filing, it has “deliberately built [its] products using an open-core software development model.” In practical terms, that means that all HashiCorp software products are “developed as open-source projects, with large communities of users, contributors, and partners collaborating on their development.”

The Exchange has written some about how OSS has evolved from exoticism to in-market advantage in recent months. For investors just now picking up on the monetization possibilities that open source software can unlock in-market, HashiCorp’s IPO should be a klaxon that they are behind.

Regardless, how does HashiCorp make money from open source software? The company has built proprietary code atop its open source products that it sells, while also offering support and a hosted version of its products.

The company generates revenue in several buckets. The first and biggest bucket is subscription revenues. The second is professional services — this is generally understood, so we’ll leave it alone.

Crypto investors like Terraform Labs so much, they’re committing $150 million to its ‘ecosystem’

There are many blockchain platforms competing for investors’ and developers’ attention right now, from the big daddy of them all, Ethereum, to so-called “Ethereum Killers” like Solana, which we wrote about in May.

Often, these technologies are seen as so promising that investors are willing to fund not only the blockchains but an ecosystem of products and projects that are built on their blockchain networks. On Wednesday, for example, Phantom, a digital wallet that resides on the Solana blockchain network, announced $9 million in  Series A funding led by Andreessen Horowitz (which in June also splashed out a lot of money for Solana’s digital tokens).

Similarly, a syndicate of investors today is casting their votes for Terraform Labs, a three-year-old platform that originally set out to mint different so-called stablecoins for e-commerce that mimic the value of various fiat currencies and has since expanded its offerings.

There is so much more to be built off the platform, in fact, that backers including Pantera Capital and Arrington XRP have just committed to investing $150 million on products tied to the Terra ecosystem, commitments that will be deployed over several years, says the company, and commitments that, should they prove fruitful, will boost Terraform’s underlying growth in a kind of virtuous circle.

Why are they so excited about Terraform? The Singapore-based company has apparently been gaining ground fast with merchants in users in South Korea by shortening settlement time from days to seconds, often without e-commerce customers knowing that their online (and sometimes offline) transaction involved a blockchain.

It’s been doing so well, says investor Mike Arrington, that it launched an e-commerce wallet called Chai that’s grown popular in Asia. It also launched Mirror Protocol, which creates fungible assets, or “synthetics,” that track the price of real world assets. (Arrington XRP led Mirror’s first round.)

Indeed, the market cap of Terraform’s tokens — they’re called LUNA — has skyrocketed from $300 million in January to $2.6 billion as excited buyers snap them up.

Whether these backers are getting ahead of themselves is an open question, but the company’s equity investors — which also include Coinbase Ventures and Mike Novogratz of Galaxy Digital — are plainly betting there is more to come.

Back in January, when Galaxy co-led a $25 million round in Terraform, Novogratz talked with Bloomberg about the investment. Among other praise heaped on the company, he said that: “What’s great about Terra is they are one of the first sandbox experiments that’s getting outside the sandbox. We are always looking at those projects because they are the canaries in the coal mines of what else is going to happen.”