Disgraced crypto mogul Do Kwon admitted to faking trading volume, court documents from the U.S. Securities and Exchange Commission show.
A September 22 SEC filing shows a text message exchange between Do Kwon and Daniel Chin, the founder of payments app Chai, where Do Kwon tells him: "I can just create fake transactions that look real...which will generate fees."
Chin asks Do Kwon what if "people find out it's fake," to which Do Kwon responds: "I won't tell if you won't."
Chai partnered with Do Kwon's Terra to speed up payments. But last year, Terra collapsed and now the SEC is accusing Do Kwon of fraud. In the SEC's lawsuit against Terra, the agency alleges that the partnership wasn't anything like what had been marketed to users and that Terra never replaced Chai’s payment systems.
It was a big allegation to make considering that Chai founder Daniel Shin also cofounded Terraform with Kwon in 2018.
In a statement on Twitter, Terraform Labs CEO Chris Amani dismissed the leaked text messages as "not damning." Said Amani: "This was a private conversation, (albeit an inelegant one) about the need to boostrap validators to ensure the security of the chain. In many cosmos chains today, that is done through inflationary rewards. Terra relied only on fees so they needed some other way to do it."
This has nothing to do with Chai and isn't damning.
This was a private conversation, (albeit an inelegant one) about the need to boostrap validators to ensure the security of the chain. In many cosmos chains today, that is done through inflationary rewards.
Terra relied only on… https://t.co/IzBXinwmf9— Chris Amani | Terra (@fleece_cannon) September 29, 2023
In 2019, Terra announced its partnership with Chai, writing in a blog post it would “rebuild the payments stack on the blockchain to simplify the legacy payment system and provide transaction fees at a discounted rate to merchants.”
The company estimated the deal would result in processing “millions—if not billions—in transaction volume.”

A Stable Con: Key Takeaways From the SEC’s Lawsuit Against Terra
Terraform Labs CEO Do Kwon’s location is still “unknown,” according to the Securities and Exchange Commission’s lawsuit, which claims he fabricated details to supercharge growth on the Terra ecosystem before its collapse in 2022. Do Kwon co-founded Terraform Labs with Daniel Shin in 2018, a year before they launched the Terra network. The company also created TerraUSD (UST), an algorithmic stablecoin. By April 2022, its market capitalization had reached $17 billion and it unseated Binance USD as...
“Chai payments did not use the Terraform blockchain to process and settle payments,” the SEC wrote in its complaint. “Rather, Defendants deceptively replicated Chai payments onto the Terraform blockchain, in order to make it appear that they were occurring on the Terraform blockchain, when, in fact, Chai payments were made through traditional means.”
Now the SEC's new filing sheds new light on the relationship between Do Kwon's Terraform and Chai.
"For instance, in an extensive private chat between Kwon and Daniel Shin during the early stages of Chai and Terraform’s formation and partnership, Kwon details how he intended to use Chai to create fake transactions on the Terra blockchain, which would appear real and generate fees," the SEC writes in the court filing.

Terra Co-Founder Do Kwon: I Am Not 'On the Run'
Earlier this week, South Korean prosecutors issued an arrest warrant for Do Kwon, the disgraced co-founder of the Terra ecosystem that crashed spectacularly in May; they also asked the finance ministry to void his passport. The authorities looking for Kwon believed he was in Singapore, but on Saturday, Singapore police said Kwon is not there. Now Do Kwon has chimed in on Twitter. On Saturday afternoon, Kwon tweeted, "I am not 'on the run' or anything similar - for any government agency that has...
Do Kwon's Terra was a massive crypto ecosystem with lots of apps largely focused on algorithmic stablecoins.
It was hugely popular DeFi blockchain and the second biggest after Ethereum. Its native cryptocurrency, LUNA, was in its prime as one of the top biggest digital assets by market cap. But in May 2022, Terra collapsed—leading to a brutal bear market and many crypto projects with exposure to the project to declare bankruptcy.
#DecryptLIVE: Crypto crash roundtable
Crypto bloodbath! How low will the major coins go, and what about Terra and stablecoins? Decrypt’s Dan Roberts, Jeff Benson, Stacy Elliott and Jason Nelson will discuss the news and parse through what’s happened and what might happen next.
American and South Korean authorities have since hit Do Kwon with a litany of charges. Authorities arrested him in Montenegro earlier this year on charges of document forgery. After a court found him guilty, he's been indefinitely been detained in jail and argued against his extradition to the United States.
Editor's note: This article was updated after publication to include comments from Terraform Labs CEO Chris Amani.