TerraUSD was designed as a “stablecoin,” which are pegged to stable assets like the U.S. dollar to prevent drastic fluctuations in prices. However, around $40 billion in market value was erased for the holders of TerraUSD and its floating sister currency, Luna, after the stablecoin plunged far below its $1 peg in May.
South Korean prosecutors launched the investigation last month following collective complaints filed by dozens of investigators. They could try to summon Kwon, who is reportedly in Singapore and faces accusations that he exaggerated the stability of his currencies.
The Bank of Korea, South Korea’s central bank, said in a report published earlier this month that the collapse of TerraUSD and Luna was a major factor in the global currency market shrinking by more than 40% compared to late last year, when its market value reached over $2.3 trillion. The U.S. Federal Reserve’s recent decision to raise its key interest rate to fight inflation has also contributed to the slide by further repelling investors from volatile assets, the bank said.