A court filing by the Securities and Exchange Commission (SEC) has revealed leaked chats between Do Kwon, founder of the collapsed Terra blockchain, and Daniel Shin, the CEO of the Chai payment app. The chat history, dating back to 2019, showed that the co-founders allegedly planned to create fake transactions to generate fees during the project’s development. Shin expressed concern about the idea, but eventually agreed to test it on a smaller scale. The SEC claims that Terraform Labs, which partnered with Chai in 2019, generated false Chai payments on the Terra blockchain to deceive investors.
Terraform Labs partnered with Chai in 2019 to accelerate Terra’s payment processing. The collaboration aimed to simplify the legacy payment system and provide discounted transaction fees to merchants by rebuilding the payments stack on the Terra blockchain. Additionally, the partnership intended to incorporate Terra’s Korean won-pegged stablecoin KRT into the Chai payment app. However, the relationship between Terraform Labs and Chai ended in 2020 when Shin established Chai Corporation, and the app has been operating independently since then.
The SEC has requested Do Kwon’s possible extradition from Montenegro, where he was arrested and sentenced to prison for forging travel documents. Do Kwon’s attorneys oppose the extradition request, arguing that it would hinder Terraform Labs’ ability to present a statement from him during the summary judgment process. Despite the short duration of the partnership between Terraform Labs and Chai, the SEC believes it was sufficient time to carry out the alleged fraudulent activities effectively.