Terraform Labs Caught Moving $4.8M Through Shell Company | Hacker News Reader

Terraform Labs Caught Moving $4.8M Through Shell Company

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162 pointsthm97 comments

Terraform Labs was behind Terra USD stable coin which collapsed recently. It is run by South Korean crypto-entrepreneur Do Kwon.

It would be interesting to see if Do Know emerges from this ultra rich as I suspect he was able to redirect some of his earnings (or should I call them winnings) out of the Terra USD stable coin and into other holdings.

I mean, this guy is shady yes, but the people who bought into a financial instrument without really understanding it made their bed.

That sounds like victim blaming.

Most people couldn't tell you how a 401k works or even how a mutual fund works. It's why regulations are so important and it's why things like NFTs will probably soon be regulated as securities.

Financial instruments are incredibly complex. It's very dangerous to engage with them unless you fully understand what you're getting yourself into. Other people have a huge incentive to exploit any weakness in the financial asset, even in regulated industries. For instance, BlackRock bought credit default swaps in a Spanish company, and then paid that company to default on its debt, thus making a profit at the expense of the counter party. Regulation isn't going to magically make complicated financial instruments safe. People should be aware that they're dangerous and to stay away.

That is incredibly shady.

>For instance, BlackRock bought credit default swaps in a Spanish company, and then paid that company to default on its debt, thus making a profit at the expense of the counter party.

Do you have a source for this? I feel like some details are lacking.

https://www.bloomberg.com/opinion/articles/2017-11-17/blacks...

The tldr is that they bought credit default swaps for debt owed by Codere SA, and then offered the company financial assistance to restructure with the requirement that they pay their existing debt late to trigger a default.

That's BlackStone, not BlackRock. They are totally different entities.

Not to be confused with BlackBoulder...

Not sure about the specific instance, but Matt Levine's invaluable Money Stuff spent a lot of time discussing so-called "Manufactured Default": https://www.bloomberg.com/opinion/articles/2018-04-10/hovnan... is an instance of how complicated these can get.

He discusses the morality of this particular issue, as part of a discussion on a proposal for the SEC to regulate it, here: https://www.bloomberg.com/opinion/articles/2021-12-16/the-se...

Basically, Levine's argument is that as a result of these sorts of shenanigans, one giant investment fund (in this case, I guess, Black Rock, though again I don't know about this specific instance) gave money to an actual company that was employing people and doing something in the real world and that was in some kind of financial trouble. And it did that because it wanted to make even more money from some hedge fund somewhere, sure, but look at who was harmed (a hedge fund that was in the business of buying and selling Credit Default Swaps) and who benefited (a real company with a whole bunch of employees who would otherwise be laid off, and another hedge fund that was in the business of buying and selling Credit Default Swaps) and I'm not sure that the whole thing is that bad?

You’re explaining how regulations come to be.

Something happens that harms some party, the event is studied and regulations are sometimes updated.

For options trading, there is always a winning and losing side. Someone is always harmed.

No. Options also provide a fundamental service - insurance. So, in the case where the option buyer is paying for insurance, sellers add value by underwriting the risk that is being insured. Hence, both the buyer and the seller win - the buyer gets insurance, the seller gets cash.

... and the insurance underwriters lose, upping their fees the next time around, so future insurance customers lose out, too.

Ex options trader here. You can sell me an option and we both make money:

Let's say the option expires worthless. You make money having done nothing but collect my premium.

I take the option, and because it's positive gamma, when it goes up I make money, and I flatten. When it goes down, I'm short, and I make money and buy. I keep doing this buying low and selling high until I've made more than the premium.

---EDIT

My point is there can be reasons for both sides to do the trade. Nobody needs to be "harmed". The line of reasoning that says one of you must lose misses the point. If you buy insurance, either your house burns down or it doesn't. That doesn't mean either you or the insurance company was harmed.

I'm not saying that if you buy an option that ends up OTM that you'll globally lose money, but in the context of that one specific trade you lost. Perhaps you're willing to take that loss in order to achieve some other goal, but my statement was about a single contract, not a general collection of trades.

You are comparing one side of one trade to the other side of many trades.

Each individual options trade is zero-sum (one side wins exactly as much as the other side loses, barring transaction fees), as is the total of all options trades.

> You are comparing one side of one trade to the other side of many trades.

The whole point of having financial instruments is that you can mix risks. Whether each individual one results in heads or tails is not actually the point, the point is entities can shape the risks they want to be exposed to.

In reality most people aren't very savvy though. Are you advocating they shouldn't invest in basic things like an S&P 500 fund or a "target date" fund or whatever? That kind of investment is almost a necessity in the US.

I'd agree they shouldn't get into CDS and other esoteric instruments, and I also would put crypto investments in the 'esoteric' bucket.

>Most people couldn't tell you how a 401k works or even how a mutual fund works.

If you don't understand how a mutual fund works, you have no business investing in some obscure "stablecoin".

But let's be real: 99.9% of the "victims" were trying to get-rich-quick themselves. Many are gambling again on Luna 2.0 right now. Caveat emptor.

Interesting you're getting downvoted. You're completely right. It's not 99% of "victims", it's most definitely 100% were trying to get-rick-quick.

Who doesn't know how a 401k works? Honestly, who?

Mutual fund - ok the mechanics are a bit more complicated but pretty straightforward.

I would reckon minimum wage workers who have never been offered a company sponsored retirement plan or had enough to save for retirement at the end of the month, would not likely understand the mechanics of a system they can’t even participate in.

In other words, a lot of people.

No offense but I don't think it's minimum wage workers who are putting tons of money into the crypto market. And my argument about who doesn't understand 401k is to the demographic who invested in this specific asset class which likely isn't minimum wage workers.

The point is that people who participate in 401ks likely understand (in the majority) how they work to a reasonable degree. It's not reasonable to compare it to crypto where the people who participate understand virtually nothing about it.

A large number of people don't even know how tax brackets work (hence some people thinking that if they get a raise they'll lose money). Basic financial literacy is not as common as you seem to think.

Similar to this, federal tax withholding is poorly understand by many people. A lot of people want to give the govt an interest free loan every year and don't understand why anyone wouldn't.

Absolutely. I recently explained this to my retiree mother-in-law who was overpaying taxes each year for fear that she'd owe money at the end of the tax year, forgetting that every dollar she overpays is another dollar she's drawing down from her saving that isn't earning (modest) interest.

Not that I can claim I'm being any smarter. I really should instruct my employer to reduce my tax withholdings, as I'm saving into a tax advantaged account to which contributions result in an income deduction. Every dollar I get at the end of the tax year in a refund is a dollar I'm not saving during the year (thus losing out on some long-term gains).

But at least I know better. ;)

You can go into regulated instruments with little research because they’re regulated.

I had friends in Luna. We all told them over and over it was a scam. They could not listen. “Dock your stuff at terra station, 20%, how are you not in crypto, look at my account size, here are ten explainer videos showing complex gamified mechanics for why I’m a savvy insider” etc

I agree regulators dropped the ball, but also at some point people really are almost willfully blind to downsides. We even had the example of Iron and Titan which collapsed similar to Luna and UST.

The example of Olympus DAO as well

> also at some point people really are almost willfully blind to downsides

I agree with you, but in societies with the concept of bankruptcy, compulsory healthcare, etc., we all bear the burden of their willful blindness.

That's why it should be a supply-side solution: people shouldn't be able to sell dangerous/scammy/faulty products at all, because there will always be suckers that the rest of us have to prop up when they launch themselves into poverty,

I’m convinced no one really believes any of this shit is legit.

They just think they’re smart enough that THEY aren’t on the bottom layer of the pyramid.

I can attest that's not the case. A lot of people think they found a really good investment and it would be a bad move to not massively invest in it.

Same. I knew acquaintances who worked in very well paid positions in some of the world's top companies, including investment banks, and they all were so smitten by this new shiny thing that they forgot to do their basic dilligence.

I tried to warn them to treat it as a "gotta check on it thrice a day" investment and not a "set it and forget it" investment but they were all lured in by the LUNA "community" and basic greed.

There comes a point where you have to ascribe some level of responsibility to the investor. Cryptocurrency is massively ridiculed for scams like this, to the extent that it's hard to feign ignorance of it. I'm not saying that the scams should be allowed, but telling people to take even the smallest of steps to protect themselves is not victim blaming. People not understanding a 401k or mutual funds isn't a reason for them to not do due diligence.

> Cryptocurrency is massively ridiculed for scams like this

This is true in the social bubbles you and I likely occupy but very much not (yet) true elsewhere.

I have had many conversations with friends and family that are outside of tech asking my what crypto is and if it's something they should invest in because all they see right now is the hype, excitement, and ads from crypto companies.

> all they see right now is the hype, excitement, and ads

I think this should really answer the question, and I don't quite understand how anyone can be self-aware enough to recognize these things without also connecting the dots that "companies which do those things to promote their products are not generally trustworthy at-large"

I know this phenomenon all too well though. It's the classic formula. "Generally Well-Understood Thing" is familiar to lots of people without need for any special qualification or training to understand the thing across a fairly wide range of functional parameters. "Generally Well-Understood Thing, but On The Internet" on the other hand is a completely new animal with all old assumptions required to be re-examined for a new understanding from first principles, assume we know nothing.

The understanding is tried, too many foreign concepts enter the discussion, often the desire to understand "how this is different" results in an under-founded belief or assumption that adding the internet DOES in fact somehow make this thing different than it was before, end with a newly emergent confusion overarching the whole and 9/10 times no further understanding is gained and no connection between the two ideas of "thing" and "thing on the internet" is retained.

There was an interview on the radio with a woman who can see in the future.

As long as media is somehow seen as normal and people don't question e everything, you need consumer protection laws.

It's that easy.

Some cryptocurrency company is advertised on the shirts of baseball umpires. Matt Damon does a commercial for some crypto company. It’s everywhere!

If you watch cable news you will see a commercial for a crypto company followed by a Vanguard commercial followed by a Fidelity commercial. In the wider world it is not massively ridiculed and is presented in the same way that more traditional investment companies are.

USDT was far more stable and secure than any typical scam, so we're well past the "smallest steps to protect [yourself]" line here. "The currency might collapse in on itself"? Yes, that's a valid concern. But, "Do Kwon might steal your money." is not a reasonable thing to expect people to be concerned about.

You can't do due diligence on a cryptocurrency, because they're based on nothing.

Cryptocurrencies aren't investments. They're gambling, and regulations should require advertising, exchanges and NFT platforms to say that.

Being a victim and being responsible for one’s own actions are not mutually exclusive. Like all things, this is not black and white but nuanced.

I'm ok with there being a "poorly regulated" corner of finance in crypto, if individuals receive sufficient warnings that they don't have the same protections as with normal financial products, and may not even have recourse for fraud if the promoters are international or anon.

I wanted to counter point some of the responders to this post but figured I would add support here instead.

Yes, people are to blame but I think history has shown us that the masses are easy to fall for these kinds of games over and over. It is the reason we have regulation and while yes, these people are to blame, I think the bigger fault is on the government for allowing it to happen. These instruments are scams in the guise of valid financial instruments.

The victims are the developers and users of Defi products caught in the contagion. Such as when a developer hardcoded TerraUSD deposits as equalling 1 and the whole project gets arbitraged out of existence due to the mispricing.

Gullible buyers of TerraUSD (pre-crash) directly don't share this courtesy.

> It's why regulations are so important and it's why things like NFTs will probably soon be regulated as securities.

Please correct me if I am mistaken, but it seems to me that you either fail to understand what an NFT is or fail to understand what a "security" is (note: the vast majority of NFTs do not grant nor claim to grant you any explicit form of equity or fixed income). Perhaps some NFTs can be seen as a form of equity (e.g. those representing collateralized debt positions), but the vast majority of them simply don't.

According to this logic, things like Beanie Babies and Magic: The Gathering cards should also be regulated as securities (since they're also collectible things that people trade/buy/sell).

TL;DR: Just because X can be bought/sold/traded, it doesn't necessarily make X a "financial instrument" or a "security", regardless of the question of whether economic activity around X should be regulated or not.

I think it’s important to note that this framing is not moralistic. In general, objective facts will share the same property of amorality.

Sometimes victims deserve blame. That doesn't mean they deserved to lose their money, but if they put money into an unregulated security that they didn't understand themselves, it's hard to not put some of the blame on them.

Get rich quick financial scams have been around for a long time, I remember back in the 80's when my dad got scammed buy an oil "investment" - I don't even know how he found out about it, but they mailed him an official looking prospectus with geology reports showing oil deposits, and even a sample of oil that they'd "drilled" from one of the plots, all they asked from him was $5,000 to buy rights to the land, and soon he'd be making huge profit from oil leases.

But that profit never came and soon the company just closed up shop.

If he'd invested that $5,000 in the stock market, it would have grown to over $60,000 by the time he passed away 10 years ago.

Only the greedy and stupid assume a 20% yield is risk free.

I wonder if Hashicorp has gotten any blowback from confused Luna holders. Our company gets calls all the time from people thinking we are UPS or Fedex and wondering where their package is (we audit UPS/Fedex invoices)

Like most of the commenters here, it also confused me, so I'd imagine it confuses a lot of people.

I also once worked at a company that had a name similar to a video game. Two seconds of looking at our website would have make it obvious that we were not related, but we got a lot of calls about it anyway. We got a laugh out of it when it happened.

It might be fun for those kind of scenarios but as soon as money is involved you get more and more crazy people involved that can't distinguish things (esp in a scam rich environment as "crypto"-currencies).

We had one person actually come to our office wanting to find their package. We're a small company (in terms of headcount), and don't have a glamorous office. Not sure how anyone would mistake our location for Fedex, but nevertheless this person did. I was the only one here, and there was a serious language barrier. Took several times for me to explain to him he needed to call Fedex, and that his package wasn't hiding in our office somewhere.

My daughter occasionally works for a small gift shop in Dedham, MA called "Nest". She's gotten calls from people wanting tech support for Nest thermostats.

I used to work for a storage startup named ONStor. Our front desk would get 3-4 calls a week from people trying to reach OnStar (https://www.onstar.com/).

My digital product design agency is called “A Different Engine” the number of cold emails and calls we get from car part distributors is amusing.

The name source:

https://en.m.wikipedia.org/wiki/Difference_engine

https://en.m.wikipedia.org/wiki/The_Difference_Engine

> the number of cold emails and calls we get from car part distributors is amusing

Heck, my company is called Freshpaint. The number of people that visit our site, freshpaint.io, see all the copy about data infrastructure, and still contact us looking for a quote to paint their house is hilarious.

I think my heart skipped a beat when I read the headline as I had just made an investment in $HCP. I was relieved after reading it's just another nail on Terra and not at all related to Hashicorp.

My heart has already skipped a few beats since I made an investment in $HCP in December! Still holding though. It’s part of my “invest in what you use” portfolio, which is currently a basket of red tickers, being carried by a green $NET…

Is this why Cloudflare CEO bashing Hashicorp? /s

Seriously though, what happened to that debate?

So, these guys were controlling tens of billions worth of dollars and as all failed they end up laundering 4.8M? It's either beyond desperation or maybe it's not what the author thinks it is.

It could be not the only transaction, just the first one to get caught.

It could be the first of many transactions, and was caught.

The disparity in size between a virtual cryptocoin’s “value in USD” market assessment, and the actual dollar amount of a single financial transaction performed by that coin’s operator, provides no significant information here for estimating the total scope in USD of illicit behaviors by Terraform Labs.

The market cap of Terra is about billions. It doesn't necessary mean the actual value they are controlling.

The actual order books are magnitude less than the stated market cap. For instance, somebody who is a billionaire on paper with mostly crypto holdings, cannot cash out most of its wealth.

When prices drop, the order books run into liquidity issues. It tells me on thing though, that most people have shunned crypto and that most of the noise we see is people holding crypto spamming to get somebody to take the otherside of their trade so they can liquidate their holdings...ironically to fiat which was the pinnacle of their narrative.

they were able to sell 3 billion in btc and it got soaked up without the price dropping too much

other than btc or maybe eth ya might be an issue though

It's because they didn't sell it directly on the market. They were sold to funds that would lock up the Lunas for 2 years and so on. The Lunas were also sold at a discount (relative to the market price back then).

Didn't Musk buy and sell that much bitcoin fairly easily?

I really hope Do Kwon ends up in prison for life.

It seems to be the opposite. Major investors and exchanges are trying to legitimize him by supporting the Terra relaunch.

It is absolutely amazing how crypto companies and enthusiasts can get scammed by someone and then go right back to trusting them, literally less than a month later.

https://decrypt.co/101405/crypto-exchanges-including-binance...

It's not trusting them as much as setting legal precedent so that they also don't end up in jail if there's a bank run on their tokens/chains.

If you're massively invested in crypto you need to pour a lot of money into legitimizing it and putting out fires wherever possible. Imagine you're running a scam on the street - let's imagine a dozen people playing "guess the card" (and cheating). Someone comes up and goes "woah, I saw that guy cheating, hey everyone this whole thing is a scam" - now you have two options, disavow that one guy and say "well the other card games are legit", or prop that scammer up and say "no no, that's just how the cards are played, it's a very complex system".

The latter is appealing since it admits no fault in the system. If people generally see these card games as having a high potential for being a scam, you want to avoid that scrutiny even at a very high cost.

When people's beliefs are refuted they often double down on them. It's a phenomena that people have studied.

https://en.wikipedia.org/wiki/When_Prophecy_Fails

He Kwon'ed some folks.

all these high-quality individuals keep emerging out of the realm of cryptocurrency.

I mean this is proof that these things are 100% above board! no bad actors here!

I was confused, so I checked: this is not related in any way to the Infrastructure as Code tool.

I was also confused, thank you for checking and posting.

How were you confused? Did you not read the article?

1. The article does not mention that this is unaffiliated with Hashicorp.

2. > Please don't comment on whether someone read an article. https://news.ycombinator.com/newsguidelines.html

1. It's a crypto news website 2. Why would you comment on an article if you haven't read it?

I call it "optimistic branch prediction".

Why read the article when you can go to the comments to find a correction? I very rarely if ever read the article these days as usually commentors here have much more pertinent and correct information.

I believe this is the name of the parent company behind the Luna cryptocurrency.

Yes. Hashicorp is the company behind Terraform, Terraform Labs is the company behind Luna.

The way you can tell them apart is that Hashicorp Terraform stabilizes at the state you configure it to, whereas Terraform Labs stabilizes at zero.

Hahahaha, spilled my coffee over this :P

The title reads like some sort of experimental tech incubator within Hashicorp's Terraform team is shadily transferring millions. Hashicorp should sue for trademark dilution.

They chose a single English word as their trademark, there are dozens of others already using very similar marks:

https://uspto.report/Search/terraform

They shouldn't be surprised if someone else also uses the same word.

I'm a big fan of Yiotro Games and his naming system for Antiyoy/Bleentoro/Achikaps/Shproty: Come up with a series of letters that are easy to read, pronounce, and remember, and which are not already words when naming a project. This results in no trouble with trademarks or domain names, gives easy SEO, and isn't that hard.

Trademarks are industry specific, you specify what products/services you'll be using it for when you register. Because, for example, consumers aren't confused by an airline named "Delta" and a plumbing manufacturer called "Delta".

Hashicorp's registration has a pretty decent lock on various descriptions of computer software.

I got a good laugh out of Hashicorp's trademark registration.

Cutlery??? Musical Instruments??? Fire-extinguishing apparatus??? Was someone drunk when filing?

As part of their trademark documentation they took screenshots of Google search results and API docs (LOL)

https://uspto.report/TM/88470183

Primary US Classes

    021: Electrical Apparatus, Machines and Supplies

    023: Cutlery, Machinery, Tools and Parts Thereof

    026: Measuring and Scientific Appliances

    036: Musical Instruments and Supplies

    038: Prints and Publications

Primary International Class

    009 - Primary Class
    (Electrical and scientific apparatus) Scientific, nautical, surveying, electric, photographic, cinematographic, optical, weighing, measuring, signaling, checking (supervision), lifesaving and teaching apparatus and instruments; apparatus for recording, transmission or reproduction of sound or images; magnetic data carriers, recording discs; automatic vending machines and mechanisms for coin operated apparatus; cash registers, calculating machines, data processing equipment and computers; fire-extinguishing apparatus.

The same goes for their T logo trademark: https://uspto.report/TM/88470285

All of Hashicorp: https://uspto.report/company/Hashicorp-Inc

Why does everyone want to sue everyone these days?

Free money (or the perception of it anyway).

You literally have to or you risk losing your trademark.

Patents and copyright you can not enforce if you choose not to but trademarks are a different animal.

Registering a trademark isn't about suing anyone. It's about keeping others from frivolously suing you.

If you are successful but don't register, someone _will_ register it in the same industry and sue you for infringement. They'll also some times hijack your Amazon listings if you are a seller.

Prior use is an absolute defence. You might have problems with expansion (geographic, and type of business).

This is not legal advice, just my opinion.

IANAL, but I think that's only true in the USA. Most other places are first to file, not first to use.

And even then, that doesn't prevent a frivolous suit in the USA

No, for trademarks it's standard practice to allow prior use to continue (USA, EU, UK, at least). You can have a trade mark for decades, and be protected by passing-off law, then come to register it and find a brand new company has registered that mark, but that doesn't mean you can't continue your own trade with that mark, but can mean you're going to infringe on their registered right if you change (eg enter a new TM class, enter a new geographic region).

This prevents established companies from being damaged by opponents registering their marks.

A company doesn't own their trademarks in the same sense as a patent or copyright, it's not like protecting IP. It's about protecting the consumer from being fooled.

Same here, I almost fell out of my chair.

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