`
`John T. Jasnoch (CA 281605)
`jjasnoch@scott-scott.com
`SCOTT+SCOTT ATTORNEYS AT LAW LLP
`600 W. Broadway, Suite 3300
`San Diego, CA 92101
`Tel.: 619-233-4565
`Fax: 619-233-0508
`Attorneys for Plaintiff and the Proposed Class
`[Additional Counsel on Signature Page.]
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`
`NICK PATTERSON, Individually and on Behalf
`of All Others Similarly Situated,
`Plaintiff,
`
`Case No.
`
`v.
`TERRAFORM LABS, PTE. LTD., JUMP
`CRYPTO, JUMP TRADING LLC, REPUBLIC
`CAPITAL, REPUBLIC MAXIMAL LLC, TRIBE
`CAPITAL, DEFINANCE CAPITAL/
`DEFINANCE TECHNOLOGIES OY, GSR/GSR
`MARKETS LIMITED, THREE ARROWS
`CAPITAL PTE. LTD., NICHOLAS PLATIAS,
`and DO KWON,
`
`Defendants.
`
`CLASS ACTION COMPLAINT FOR
`VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`DEMAND FOR JURY TRIAL
`
`CLASS ACTION COMPLAINT
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`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 2 of 72
`
`Plaintiff Nick Patterson (“Plaintiff”), individually and on behalf of all others similarly
`situated, by Plaintiff’s undersigned attorneys, alleges the following based upon personal
`knowledge, as to Plaintiff and Plaintiff’s own acts, and upon information and belief, as to all other
`matters, based on the investigation conducted by and through Plaintiff’s attorneys, which included,
`among other things, a review of the various regulatory filings of Defendants, press releases, and
`public statements issued by Defendants, analyst and media reports, and other commentary analysis
`and publicly disclosed reports and information about Defendants. Plaintiff’s investigation into the
`matters alleged herein is continuing and many relevant facts are known only to, or are exclusively
`within the custody and control of, the Defendants (defined below). Plaintiff believes that
`substantial additional evidentiary support will exist for the allegations set forth herein after a
`reasonable opportunity for formal discovery.
`NATURE OF THE CASE
`This collapse was one of the most violent collapses in a long time,
`only comparable to Lehman’s collapse in 2008!
`Remi Teto (Member of the Governing Council of the Luna Foundation Guard)
`Plaintiff brings this Class Action Complaint (“Complaint”) under §§5, 12(a)(1),
`1.
`and 15 of the Securities Act of 1933 (the “Securities Act”), as well as under §§10(b) and 20(a) of
`the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5 promulgated
`thereunder, 17 C.F.R. §240.10b-5, against Defendants TerraForm Labs Ptd Ltd. (“TFL” or the
`“Company”), Jump Crypto, Jump Trading LLC, Republic Capital, Republic Maximal LLC, Tribe
`Capital, DeFinance Capital/Definance Technologies Oy, GSR Markets Limited, and Three Arrows
`Capital Ptd Ltd. (collectively, the “Luna Foundation Guard”), and Individual Defendants Nicholas
`Platias and Do Kwon (together with the Luna Foundation Guard and TFL, the “Defendants”). This
`action is brought on behalf of a class consisting of all persons and entities, other than Defendants
`and their affiliates, who purchased Terra Tokens between May 20, 2021 and May 25, 2022,
`inclusive (the “Class Period”), and who were damaged thereby (the “Class”).
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`1
`CLASS ACTION COMPLAINT
`
`
`
`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 3 of 72
`
`TFL is a company that operates the Terra blockchain and its related protocol,1
`2.
`which hosts, supports, and funds a community of decentralized financial applications and products
`known collectively as the Terra ecosystem. TFL’s primary focus is developing, marketing, and
`selling a suite of digital assets and financial products within the Terra ecosystem, including the
`native and governance tokens2 within the Terra ecosystem, so-called “stablecoins,” a bevy of
`financial products such as “mirrored assets,” bonded assets, liquidity pool tokens, along with
`various protocols (e.g., Anchor, Mirror, etc.) to support and facilitate their sale. These digital assets
`are collectively referred to as the “Terra Tokens” and are worth tens of billions of dollars in total
`market cap. All of TFL’s decentralized applications are designed to manufacture a reason to use
`the Terra Tokens since there is no purpose for these digital assets other than as investments.
`3.
`Plaintiff and the Class paid fiat and/or cryptocurrencies in exchange for the Terra
`Tokens with the expectation of profit from either an increase in the price of particular Terra Tokens
`like Luna and the mirrored assets or from receiving interest payments for staking UST or other
`TFL governance tokens. This expectation was based on the efforts of Defendants to maintain the
`Terra ecosystem. Defendants sell or sold the Terra Tokens from the retained supply and used the
`proceeds from the sales to fund TFL, to reward investors, and as governance tokens. Even though
`the Terra Tokens bear all the hallmarks of being investment contracts and, thus, securities under
`the Howey test, no registration statements have been filed with the SEC with respect to the various
`Terra Tokens.
`
`1
`Akin to a company’s charter, a “blockchain protocol” is a piece of code that operates as a
`set of regulations and guidelines that govern the functioning of various parts of a blockchain
`company’s technology. Investors in TFL’s digital assets can gain governance rights over the Terra
`blockchain protocol by purchasing and staking those assets much in the same way that an investor
`gains voting rights in a public corporation by owning that corporation’s stock and voting at the
`shareholders’ meeting.
`2
`A “token” is a financial product that is contractually based (via a “smart” contract) and is
`created and uploaded permanently to a given blockchain. When investors purchase these
`products/contracts on a given blockchain, their expectation is that the general buying, selling, and
`exchanging of these tokens will function according to the terms of the original smart contract and
`in a manner similar to other tokens on the same blockchain. Thus, when a token owner transfers
`assets from one wallet address to another new wallet address, on the same blockchain, the owner
`reasonably expects that those assets will actually be transferred to the new wallet address. This
`expectation is much like an industry standard in that the same expectation applies to all current
`blockchains and tokens, not just the Terra blockchain.
`2
`CLASS ACTION COMPLAINT
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`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 4 of 72
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`On top of selling unregistered securities with the Terra Tokens, Defendants made a
`4.
`series of false and misleading statements regarding the largest Terra ecosystem digital assets by
`market cap, UST and LUNA, in order to induce investors into purchasing these digital assets at
`inflated rates.
`TFL repeatedly touted the stability of UST as an “algorithmic” stablecoin that is
`5.
`paired to the Terra ecosystem’s native token LUNA and the sustainability of the Anchor Protocol
`(“Anchor”) – a type of high-yield savings account whereby investors can “stake” or deposit UST
`with TFL in exchange for a guaranteed 20% APY interest rate. As a part of this promotional
`campaign, TFL formed the Luna Foundation Guard – a group six venture capital groups that
`promised to support and fund the Terra ecosystem and to “defend the peg” in the event that high
`volatility caused the UST/LUNA pair to become untethered from one another. The Luna
`Foundation Guard and its members Jump Crypto, Tribe Capital, Republic Capital, GSR,
`DeFinance Capital, and Three Arrows Capital acted on behalf of TFL to promote the stability of
`UST and mislead investors into believing that (1) the Luna Foundation Guard’s reserve pool would
`be sufficient to defend the peg against a proverbial run on the bank by UST/LUNA investors, and
`(2) that the Luna Foundation Guard would be able to maintain interest payments from the Anchor
`Protocol through a well-capitalized “Anchor Yield Reserve” fund.
`6.
`These promotions, along with the announcement of financial backing of major
`venture capitalists in the sector, were a siren song to both veteran and rookie crypto investors alike,
`luring them in with a purportedly “stable” digital asset in UST that would nevertheless provide
`outsized returns on investment via Anchor. The marketing of UST and Anchor was so effective
`that approximately $14 billion of UST’s market cap (75%) was deposited into Anchor at its peak.
`7.
`Between May 6, 2022 and May 9, 2022, however, structural infirmities specific to
`the Terra ecosystem exposed a crack in UST’s ability to maintain its peg to $1. The truth regarding
`the stability and sustainability of the UST/LUNA pair and the Anchor Protocol could not be hidden
`any longer from investors, and within a week, the price of UST and LUNA collapsed by
`approximately 91% and 99.7%, respectively.
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`3
`CLASS ACTION COMPLAINT
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`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 5 of 72
`
`PARTIES
`
`Plaintiff
`8.
`Plaintiff Nick Patterson (“Patterson”) is a resident and citizen of Illinois, living in
`Chicago, Illinois. As set forth in the attached certification, Plaintiff Patterson purchased Terra
`Tokens, including UST, LUNA, ANC, Mirrored Assets, and Bonded Assets during the Relevant
`Period, and suffered investment losses as a result of Defendants’ conduct.
`Defendants
`9.
`Defendant TerraForm Labs Pte. Ltd. (“TFL”) is a Seoul-based company with its
`headquarters located at 80 Raffles Place, #32-01, UOB Plaza, Singapore 048624.
`10.
`Defendant Jump Crypto is a limited liability company incorporated in Delaware,
`with its headquarters located at 600 West Chicago Avenue, Suite 600, Chicago, Illinois 60654. In
`addition to providing funding to TFL and the Luna Foundation Guard, Jump Crypto also
`contributed to Wormhole, a bridge between blockchains that can be used to transfer digital assets
`from one blockchain to another. Wormhole unleashes Terra assets, particularly UST, into the
`Solana blockchains’ burgeoning DeFi ecosystem and presents a trust-minimized conduit for users
`to send assets between Terra and Ethereum as well. Upon information and belief, Jump Crypto
`used its relationship with Wormhole to secure a favorable exit from its UST/LUNA holdings prior
`to the complete collapse of the Terra ecosystem.
`11.
`Defendant Jump Trading LLC is a limited liability company incorporated in
`Delaware, with its headquarters located at 600 West Chicago Avenue, Suite 600, Chicago, Illinois
`60654.
`
`Defendants Jump Crypto and Jump Trading LLC are collectively referred to as
`
`12.
`“Jump.”
`Defendant Republic Capital (“Republic”) is a limited liability company with its
`13.
`headquarters located at 335 Madison Avenue, Suite 7E, New York, New York 10017.
`14.
`Defendant Republic Maximal LLC is a limited liability company, incorporated in
`Delaware with its headquarters located at 335 Madison Avenue, Suite 7E, New York, New York
`10017.
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`4
`CLASS ACTION COMPLAINT
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`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 6 of 72
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`Defendants Republic Capital and Republic Maximal LLC are collectively referred
`15.
`to as “Republic.”
`16.
`Defendant Tribe Capital (“Tribe”) is a limited liability company with its
`headquarters located at 2700 19th Street, San Francisco, California 94110.
`17.
`Defendant DeFinance Capital/DeFinance Technologies Oy (“DeFinance”) is a
`Finnish limited liability company with its headquarters located at Lönnrotinkatu 36 K 22, 00180
`Helsinki, Finland.
`18.
`Defendant GSR/GSR Markets Limited (“GSR”) is a foreign limited company
`registered in Hong Kong, with its headquarters located at Suite 5508, 55th Floor, Central Plaza,
`18 Harbour Road, Wanchai, Hong Kong.
`19.
`Defendant Three Arrows Capital Pte. Ltd. (“Three Arrows”) is a Singapore-based
`company with its headquarters located at 7 Suntec Tower One 038987, 21-04 Temasek Blvd.,
`Singapore.
`Defendant Nicholas Platias is the Head of Research and a “founding member” of
`20.
`TFL, a member of the Governing Council of the Luna Foundation Guard, and one of the co-
`founders/creators of the Anchor Protocol. Platias served as a consultant and spokesman for TFL,
`the Luna Foundation Guard, and the Anchor Protocol, has exercised control over TFL and directed
`and/or authorized, directly or indirectly, the sale and/or solicitations of the Terra Tokens to the
`public.
`
`Defendant Do Kwon is the co-founder and Chief Executive Officer of TFL and has
`21.
`been since 2018. Kwon is a resident of the Republic of Korea. Since its inception, Kwon has
`exercised control over TFL and directed and/or authorized, directly or indirectly, the sale and/or
`solicitations of the Terra Tokens to the public. Kwon graduated with a Bachelor of Science degree
`in computer science from Stanford University in California and travelled to the United States to
`conduct business on behalf of TFL, including to a digital asset and blockchain conference held in
`New York City in September 2021.
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`5
`CLASS ACTION COMPLAINT
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`
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`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 7 of 72
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`JURISDICTION AND VENUE
`This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C.
`22.
`§1332 because: (1) there are 100 or more (named or unnamed) class members; (2) there is an
`aggregate amount in controversy exceeding $5,000,000, exclusive of interest or costs; and (3) there
`is minimal diversity because Plaintiff and at least one Defendant are citizens of different states.
`This Court has supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. §1367.
`23.
`This Court may exercise jurisdiction over Defendants because they have continuous
`and systematic contacts with this District, do substantial business in this State and within this
`District, and engage in unlawful practices in this District as described in this Complaint, so as to
`subject themselves to personal jurisdiction in this District, thus rendering the exercise of
`jurisdiction by this Court proper and necessary.
`24.
`TFL appears to be actively conducting business within this District. Significantly,
`Defendant Platias – a resident of California – is a founding member of TFL and serves as its Head
`of Research. Platias, along with Defendant Kwon, authored the April 2019 LUNA whitepaper3 on
`behalf of TFL and serve as two of six members on the Luna Foundation Guard’s Governing
`Council. The June 2020 whitepaper for the Anchor Protocol was also co-authored by Platias.
`Relatedly, Platias wrote the “Introducing Anchor” opening statement that was published by TFL
`on July 6, 2020.4 As discussed at length below, the Anchor Protocol was at the primary driver of
`the Terra ecosystem’s collapse. Thus, the source of the alleged misconduct related to the Anchor
`Protocol, UST, and LUNA, as well as numerous misleading statements made on behalf of TFL,
`occurred within California and impacted its residents.
`25.
`In addition, as noted in court filings by the SEC concerning TFL’s Mirrored Assets
`(discussed below), TFL’s financial products “are offered and available for purchase by U.S.
`investors through Terraform’s web application” as well as on digital asset trading platforms. TFL
`
`3
`A “whitepaper” is a document created by blockchain companies that describe the project
`and the terms of its launch and operations. While whitepapers contain vastly less information than
`what is required in an SEC registration statement, they do represent the primary offering document
`for a blockchain-related project.
`4
`Nicholas Platias, Introducing Anchor, MEDIUM (July 6, 2020), https://medium.com/terra-
`money/introducing-anchor-25d782cbb509.
`6
`CLASS ACTION COMPLAINT
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`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 8 of 72
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`and Individual Defendants Kwon and Platias promoted the Terra Tokens and related protocols
`through, among other means, TFL’s website, web application, social media accounts, podcast
`interviews, and through U.S. media.5
`26.
`TFL’s origins are firmly rooted in California and began, upon information and
`belief, during Defendant Kwon’s time at Stanford. For example, TFL has had several funding
`rounds since its inception in 2018. According to TFL, the majority of the “Early VC” and “Seed”
`investors were California businesses. For example, TFL received millions of dollars of start-up
`and maintenance funding from the following California entities:
`a.
`Pantera Capital located in Menlo Park, California;
`b.
`Lightspeed Venture Partners located in Menlo Park, California;
`c.
`Blockchain.com Ventures located in Palo Alto, California;
`d.
`TransLink Capital located in Palo Alto, California;
`e.
`Coinbase Ventures located in San Francisco, California;
`f.
`Polychain Capital located in San Francisco, California; and
`g.
`Synapse Capital located in San Francisco, California.
`Anchor Protocol has similarly received millions of dollars in start-up funding from
`27.
`the following California entities:
`a.
`Alameda Research located in Berkeley, California;
`b.
`Dragonfly Capital Partners located in San Francisco, California;
`c.
`Pantera Capital located in Menlo Park, California; and
`d.
`Naval Ravikant, an investor located in Palo Alto, California.
`Likewise, one of the members of the Luna Foundation Guard – Defendant Tribe
`28.
`Capital – is also located in and operates out of San Francisco.
`
`5
`See, e.g., Michael P. Reagan, Fake Tesla, Apple Stocks Have Started Trading on
`Blockchains, BLOOMBERG NEWS (July 6, 2021), https://www.bloomberg.com/news/articles/2021-
`07-06/fake-teslaapple-stocks-have-started-trading-on-blockchains; Our mission
`is
`to bring
`decentralized monies to as many blockchains as possible: Terraform Labs CEO, YAHOO! NEWS
`(July 12, 2021), https://news.yahoo.com/mission-bring-decentralized-monies-many171201969
`.html.
`7
`CLASS ACTION COMPLAINT
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`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 9 of 72
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`Defendant Three Arrows Capital was initially established and headquartered in San
`29.
`Francisco, California, and maintains investments in several California-based cryptocurrency
`projects and businesses.
`30.
`Venue is proper in this judicial District pursuant to 28 U.S.C. §1391(b) because
`certain Defendants live and/or conduct business in this District, therefore, a substantial part of the
`events or omissions giving rise to the claims alleged herein occurred in this District.
`FACTUAL ALLEGATIONS
`
`A.
`
`The Terra Ecosystem
`1.
`TFL
`TFL is a Seoul-based company founded in 2018 by Defendant Do Kwon and Daniel
`31.
`Shin that, as noted by the SEC in its own investigation into TFL’s digital assets, “regularly
`transacts business in the United States, included by contracting with U.S.-based companies, such
`as a prominent digital asset-trading platform incorporated in Delaware. Several employees of
`[TFL] appear to reside in the United States, including Terraform’s General Counsel (located in
`Pennsylvania), its Business Development lead (located in Texas), its Head of Research [Defendant
`Platias] (located in California), and its Director of Special Products (located in New York).”6
`32.
`TFL operates the Terra blockchain, a platform upon which the Terra ecosystem’s
`decentralized financial products and services are developed and supported. These products and
`services take the form of “decentralized applications” and protocols built by TFL. With respect to
`financial products, TFL has three main types of digital assets that it created: (1) tokens that are
`native to the Terra ecosystem; (2) stablecoins; and (3) the various Mirrored Assets, Bonded Assets,
`and LP Tokens.
`33.
`According to South Korea’s Supreme Court Registry Office court documents, Do
`Kwon dissolved TFL’s headquarters on May 4, 2022, and the Seoul branch on May 6, 2022. The
`
`6
`SEC v. Terraform Labs PTE, Ltd., No. 1:21-mc-00810 (S.D.N.Y. Nov. 12, 2021),
`Declaration of Roger J. Landsman in Support of U.S. Securities and Exchange Commission’s
`Application for an Order to Show Cause and for an Order Requiring Compliance with Subpoenas,
`ECF No. 4.
`
`8
`CLASS ACTION COMPLAINT
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`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 10 of 72
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`decision came following a general shareholder meeting on April 30, 2022, with Do Kwon acting
`as the liquidator.7
`2.
`Do Kwon
`The New York Times described Defendant Kwon as “a trash-talking entrepreneur”
`34.
`that caused a “$40 Billion Crash.”8 One of Kwon’s go-to insults is to demean and delegitimize
`his detractors or critics of the Terra Tokens by dismissing them as “poor.”
`35.
`For example, on July 1, 2021, Kwon mocked a British economist, Frances Coppola,
`who criticized the algorithmic stablecoin model. Instead of addressing the concerns raised by
`Coppola, in particular, the charge that the algorithmic stablecoin model could not defend against
`a bank run, Kwon was dismissive and condescending, stating “I don’t debate the poor on Twitter,
`and sorry I don’t have any change on me for her at the moment.”9
`36.
`On December 30, 2021, the co-founders of a rival stablecoin, Maker DAO, posted
`a thread discussing predictions for the crypto sector in 2022. In particular, they predicted that
`“UST will collapse in a death spiral with LUNA hyper-inflating to try to cover the peg”10 and gave
`the following tongue-in-cheek remarks: “Look, UST and MIM are solid ponzis and I respect that.
`You can make good money off them for sure. But they are not built for resilience and they are
`going to 0 once the market turns for real . . . . Now stop trying to scam users looking for actual
`stability into being ur exit liquidity.”11 When asked if he was willing to place a bet that the
`MakerDAO founders were wrong, Kwon simply replied “I don’t gamble against the poor.”
`
`7
`See Kevin Helms, Do Kwon Dissolved Terraform Labs Korea Days Before Collapse of
`Terra LUNA, UST, BITCOIN (May 19, 2021), https://news.bitcoin.com/dokwon-dissolved-
`terraform-labs-korea-days-before-collapse-of-terra-luna-ust/.
`8
`David Yaffe-Bellany and Erin Griffith, How a Trash-Talking Crypto Founder Caused a
`$40 Billion Crash (May 18, 2022), https://www.nytimes.com/2022/05/18/technology/terra-luna-
`cryptocurrency-do-kwon.html.
`9
`https://twitter.com/stablekwon/status/1410491186196795398?s=20&t=WhXnvJmqblLyJePq
`laNsDQ.
`10
`https://twitter.com/hexonaut/status/1476649894479753238?s=20&t=2n6IPnOxhcpLu7CoEn
`DtOg.
`11
`DtOg.
`
`https://twitter.com/RuneKek/status/1478166276979793922?s=20&t=2n6IPnOxhcpLu7CoEn
`
`9
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`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 11 of 72
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`In addition, UST/LUNA is not Kwon’s first trip around the failed stablecoin block.
`37.
`Kwon has had similar failures with previous attempts to market and sell a stablecoin and thus he
`knew or should have known that his conduct with UST/LUNA was likely to mislead investors and
`cause them financial harm. For example, in 2021, Kwon launched the Basis Cash (“BAC”) token,
`another algorithmic stablecoin project that sought and failed to maintain a $1 peg. A former
`engineer at Terraform Labs, Hyungsuk Kang, claimed that Basis Cash was a side project created
`by him and Do Kwon. Since Kwon’s previous algorithmic stablecoin failed, it is possible that he
`could have anticipated UST’s failure to maintain the peg.12
`3.
`The Luna Foundation
`On or around January 19, 2022, TFL announced the formation of the Luna
`38.
`Foundation Group – a Singapore-based non-profit organization – for the purpose of “facilitating
`the growth of the Terra ecosystem” and “improving the sustainability and stability of Terra’s
`algorithmic stablecoins.”13
`39.
`The announcement noted previous criticisms directed towards algorithmic
`stablecoins like UST, but the Luna Foundation Guard downplayed the “misconception” that
`algorithmic Stablecoins are “unsustainable.” The Luna Foundation Guard went on to state that a
`previous depegging that occurred in May 2021 was not a sign that UST was more unstable than
`disclosed, but rather, a learning opportunity that UST was able to capitalize on:
`By concentrating almost explicitly on bootstrapping the demand-side of
`algorithmic stablecoins, UST weathered a massive, reflexive drawdown in the
`LUNA price in May ‒ learning important lessons and improving upon its design
`and adoption strategy. Still, questions persist about the sustainability of
`algorithmic stablecoin pegs, which is something our community doesn’t hide
`from and tackles head-on.
`
`*
`*
`*
`In order to succeed, we need to continue supplementing the Terra economy
`with effective resources across multiple dimensions. These include everything
`from technical developer tooling to capital backing projects, educational materials
`
`12
`Sam Kessler and Danny Nelson, UST’s Do Kwon Was Behind Earlier Failed Stablecoin,
`Ex-Terra Colleagues Say, COINDESK (May 11, 2022), https://www.coindesk.com/tech/2022/05/
`11/usts-do-kwon-was-behind-earlier-failed-stablecoin-ex-terra-colleagues-say/.
`13
`The Intern, Formation of the Luna Foundation Guard (LFG), MEDIUM (Jan. 19, 2022),
`https://medium.com/terra-money/formation-of-the-luna-foundation-guard-lfg-6b8dcb5e127b#:~:
`text=We're%20pleased%20to%20announce,sustainability%20and%20stability%20of%20Terra's.
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`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 12 of 72
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`helping onboard new users and builders, and innovative mechanisms to support
`algorithmic stablecoin models amid volatility.
`
`[Emphasis added.]
`
`The Luna Foundation Guard’s so-called “core mandate” was to “buttress the
`40.
`stability of the UST peg and foster the growth of the Terra ecosystem. Building reserves that
`backstop the peg of algorithmic stablecoins amid volatility and funneling resources into research
`that further advances what’s possible with stablecoins . . . .”
`41.
`In addition to deploying “capital backing” to prop up TFL’s stablecoins and Anchor
`Protocol, the Luna Foundation Guard also was tasked with providing funding and grants for
`builders, researchers, community members, and developers working “in the interest of the Terra
`economy categorized into 3 primary groups: Open-Source Technology Development, Research
`& Education, and Community Growth.”
`42.
`The Luna Foundation Guard is overseen and operated by a “Governing Council,
`initially comprised of the following leaders and experts in the industry, which will expand to
`include leading builders in the Terra ecosystem.” The founding members of the Luna Foundation
`Guard’s Governing Council included: Defendants Do Kwon and Nicholas Platias from TFL;
`Kanav Kariya, the President of Jump Crypto (one of the six venture capital groups comprising the
`Luna Foundation Guard); Remi Tetot, co-founder of RealVision TV; Jonathan Caras, the Project
`Lead at Levana Protocol; and José Maria Delgado co-founder of Delphi Digital.
`43.
`The Luna Foundation Guard was initially funded with a 50 million LUNA gift on
`January 22, 2022, from TFL to “help bootstrap its stabilizing reserves and grants framework.”
`44.
`In February 2022, TFL announced that the Luna Foundation Guard closed a
`$1 billion private token sale for “use in establishing a UST Forex Reserve denominated in Bitcoin”
`to serve as collateral for the TFL stablecoins.14 This was the first of several rounds of funding that
`the Luna Foundation Guard provided to the Terra ecosystem.
`
`14
`Nick Rodriguez, Luna Foundation Guard (LFG) Raises $1 Billion for a_ Bitcoin-
`for Terra’s UST Stablecoin, PRWEB (Feb. 22, 2022),
`Denominated Forex Reserve
`
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`Case 3:22-cv-03600 Document 1 Filed 06/17/22 Page 13 of 72
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`45.
`
`The Terra Tokens
`4.
`These various Terra Tokens are described further as follows:
`a.
`Native and Governance Tokens
`
` LUNA – launched in or around April 2019, LUNAa tokens are the native token for
`TFL. The Terra protocol runs on a Proof of Stake (PoS) blockchain, where miners
`need to stake the native token Luna to mine Terra transactions. Luna tokens are
`also the pair to the UST algorithmic stablecoin.
`
` ANC – is the governance token for the Anchor Protocol and it is minted by TFL on
`the Terra blockchain. ANC “is designed to capture a portion of Anchor’s yield,
`allowing its value to scale linearly with Anchor’s assets under management
`(AUM). Anchor distributes protocol fees to ANC stakers pro-rata to their stake,
`benefitting stakers as adoption of Anchor increases . . . .”15 ANC tokens are also
`“used as incentives to bootstrap borrow demand and provide initial deposit rate
`stability.” Notably, 100M ANC tokens have been “allocated to the creators of
`Anchor” (including Kwon and Platias). Investors in the Anchor Protocol receive
`their 20% APY on their UST deposits in ANC tokens, which can be subsequently
`exchanged for other cryptocurrencies.
`
`
`
`$WHALE – Whale tokens are a “social” digital asset that is backed by both tangible
`and rare NFTs.
`
` ASTRO – Astro is a governance token for a DeFi protocol built on the Terra
`ecosystem.
`
` APOLLO – Apollo is a governance token for a DAO that “governs a War Chest for
`meta-governance and capital investments in decentralized ecosystems” like the
`Terra ecosystem.
`
`https://www.prweb.com/releases/luna_foundation_guard_lfg_raises_1_billion_for_a_bitcoin_
`denominated_forex_reserve_for_terras_ust_stablecoin/prweb18511880.htm.
`15
`Anchor Token (ANC) whitepaper, https://docs.anchorprotocol.com/protocol/anchor-
`token-anc (last visited June 15, 2022).
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` XDEFI – XDEFI is a token associated with a non-custodial wallet/digital asset
`wallet company that supports the Terra ecosystem.
`
`
`
`
`
`
`
`$MINE – MINE tokens are the native token for the Pylon Protocol, a suite of
`decentralized finance savings and payments products powered by yield redirection
`on the Terra blockchain.
`
`aUST – A token provided when UST tokens are deposited into Achor Protocol.
`vUST – An arbitrage UST token that aims to enforce the UST peg by exploiting
`arbitrage opportunities.
`
` MIR – Mirror Token functions as a governance-type token for the Mirror Protocol.
`It allows investors to interact with Mirrored Assets (discussed below).
`Cryptocurrency markets are notoriously volatile, with intraday price and/or
`46.
`exchange rate swings of 10% in a few hours occurring regularly. These wild fluctuations make
`cryptocurrencies generally less suitable as a medium of exchange for routine transactions like
`purchases. Stablecoins purport to solve this problem by attempting to tie or “peg” their market
`value to an external collateral with less volatility, such as another currency (e.g., U.S. dollars),
`commodity (e.g., gold), or financial instrument (e.g., stocks, cryptocurrencies, etc.). The price of
`a stablecoin (including those developed by TFL) is supposed to always remain at $1, and
`developers of these digital assets have devised two primary ways to maintain price stability: over-
`collateralization with fiat reserves16 and algorithmic stablecoins.
`b.
`Stablecoins
`
` UST – TerraUS is an algorithmic stablecoin that operates through a pair of tokens
`(the stablecoin itself and another digital asset that backs the stablecoin) and a smart
`contract that regulates the relationship between the two (i.e., the algorithm). Instead
`of swapping UST for $1 in dollar reserves in with over-collateralized stablecoins,
`investors could exchange one UST stablecoin for $1 worth of TFL’s LUNA. But
`in order to maintain UST’s 1:1 parity with the U.S. dollar, TFL’s algorithm mints
`
`16
`Over-collateralized stablecoins maintain fiat reserves with enough cash or cash equivalents
`on hand to cover each respective stablecoin on a 1-to-1 basis. Si