A court filing by the SEC has shown the contents of leaked chats between Do Kwon, founder of the Terra blockchain which collapsed in 2022, and co-founder Daniel Shin, the CEO of the Chai payment app.
Chat History Between The Two Co-founders
On September 22, 2023, a court filing revealed the chat history between Do Kwon and Daniel Shin, the founder of the payment app Chai. The chats between both founders date back to 2019.
In the filing, it was revealed that Do Kwon and Shin had allegedly planned to create fake transactions to generate fees during the project’s development and to help support their activities.
“I can just create fake transactions that look real…which will generate fees… and we can wind that down as Chai grows.” Do Kwon said this to Shin in response to a question asking about when will participants start engaging in staking and when the token airdrops end.
Shin was concerned about Do Kwon’s suggestion and he asked “What if people find out it is fake?” Do Kwon responded saying, “All the power to those that can prove it’s fake… because I will try my best to make it indiscernible. I won’t tell if you won’t.”
Nevertheless, after a series of texts, Daniel Shin concurred with Do Kwon’s suggestion and demanded they test it on a smaller scale in the meantime, which Do Kwon agreed to.
The US Securities and Exchange Commission (SEC) claimed in filing that Terraform Labs partnered with the payment app Chai in 2019, so the app could settle transactions on-chain.
Meanwhile, Chai payments were carried out traditionally and the executives generated false Chai payments onto the Terraform blockchain to make it seem as if the payments were occurring on the blockchain to deceive investors.
According to the SEC, investors bought hundreds of millions of LUNA and other tokens in the belief that the relevant Chai transactions were carried out on the Terra blockchain.
So far, the SEC has requested, if possible, that Do Kwon be extradited to the United States from Montenegro where he was arrested and sentenced to prison for forging travel documents.
The defendant’s attorneys were against the SEC’s request saying that it was impossible to allow Do Kwon to leave Montenegro. The attorneys therefore requested that the court should dismiss the SEC’s request, positing that it would prevent Terraform Labs from presenting a statement from Do Kwon during the summary judgment process if granted.
The relationship between Terraform Labs and Chai did not last for a long time as it ended back in 2020. However, the SEC believes that the relationship lasted long enough to carry out such a deceptive plan effectively.
Terraform Labs Partnership With Chai
Terraform Labs partnered with Chai in 2019 to speed up Terra’s payment. The blockchain announced its partnership with Chai on Medium noting that it would rebuild the payments stack on the Terra blockchain to simplify the legacy payment system and provide transaction fees at a discounted rate to merchants.
Another reason for the partnership between Terraform Labs and Chai was to incorporate Terra’s Korean won-pegged stablecoin KRT into the payment app.
However, both parties cut ties when Shin moved on to establish Chai Corporation in 2020. Following this development, Chai has been operating independently.