A South Korean court has ruled in favor of a Vietnamese investor who lost access to his LUNC tokens (formerly LUNA) due to a transfer delay on the Upbit cryptocurrency exchange. The decision, announced on August 7, 2024, could have wider implications for crypto exchanges and investor protection in the country.
Investor Loses Access to LUNC Before Crash
The unnamed investor, a resident of Vietnam in his 50s, attempted to transfer 1,310 LUNC tokens from his Upbit wallet to Binance in March 2022. His intention was to sell the tokens and convert the proceeds into Vietnamese dong. However, the transfer failed due to an incomplete wallet address provided by the investor. This resulted in the tokens being deposited into Upbit’s own wallet instead of the intended recipient.
The investor contacted Upbit requesting the return of his tokens. Upbit acknowledged the issue but cited new anti-money laundering (AML) regulations as a reason for the delay. Despite repeated requests over the following month, Upbit continued to stall, claiming they were “completing the appropriate procedures.”
Crash Wipes Out Value of LUNC
Tragically, the Terra ecosystem and the LUNC token crashed in May 2022. The value of the investor’s tokens, which stood at approximately $107,000 at the time of his initial request, plummeted by 99.9% just before the token was delisted on Upbit.
Court Rules in Favor of Investor
The investor filed a lawsuit against Upbit in September 2022. The Seoul Central District Court ruled in his favor, ordering Upbit to compensate him for the lost value of his LUNC tokens, amounting to approximately $107,000. The court also awarded late payment interest.
Upbit’s Arguments Rejected
Upbit’s defense claimed they were not responsible for losses incurred due to their adherence to national law and protocols. However, the court dismissed these arguments, stating that Upbit was aware of the situation and returning the tokens was technically feasible.
Judge Criticizes Upbit’s Lack of Preparedness
The judge further criticized Upbit for failing to prepare for such scenarios. The court highlighted that accidental wallet address errors during transfers are not uncommon in the crypto world and Upbit should have implemented measures to address these issues. This could have involved assigning dedicated staff or establishing a computerized system to facilitate recovery of funds in similar situations.
Implications for Crypto Exchanges and Investors
This case sets a precedent for investor protection in South Korea’s cryptocurrency market. It emphasizes the importance of robust communication and swift action by crypto exchanges when dealing with user funds. It also suggests that exchanges need to implement efficient procedures to handle accidental transfer errors, ensuring minimal disruption to users. The decision could prompt other exchanges to review their policies and procedures to better safeguard their customers’ assets.
While the ruling offers a win for this particular investor, the broader LUNC saga continues. Terraform Labs, the company behind Terra and LUNC, ceased operations in June 2024. Its co-founder, Do Kwon, is expected to be deported to South Korea to face fraud charges related to the Terra ecosystem collapse.
