Terra is a blockchain platform that aims to create a global payment system powered by stablecoins, which are cryptocurrencies that are pegged to fiat currencies or other assets. Terra’s native token is LUNA, which acts as security for the network, helps to stabilize the price of stablecoins, and equally enables governance.
In May 2022, Terra launched a genesis airdrop, where it distributed 10% of the total LUNA supply to Ethereum holders who had at least 100 ETH in their wallets.
The airdrop was meant to reward early crypto adopters and attract new users to the Terra ecosystem.
However, the airdrop also resulted in a major controversy that has been brewing for months and recently escalated to a public feud between Terraform Labs (TFL), the company behind Terra, and Jimmy Le, a community member who received an accidental airdrop of 2.5 million LUNA, worth about $250 million at the time.
TFL accused Le of not cooperating with them and holding onto the airdropped funds, while Le claimed that TFL was running a smear campaign against him and that he had legitimate tax concerns that prevented him from returning the funds.
In this article, we will analyze the different perspectives and arguments of the parties involved, as well as the implications and lessons learned from this incident.
Terra’s Perspective and Accusations
On Jan. 5, 2023, TFL posted a Twitter thread revealing the details of the accidental airdrop and their attempts to contact and negotiate with Le. According to TFL, the accidental airdrop occurred because of a CW3 multi-sig wallet error, and therefore, some signers received $LUNA airdrops they shouldn’t have.
TFL stated that Le failed to cooperate with them and was the only one who had not given back the accidental airdrop.
TFL accused Le of allegedly collaborating with a new validator – MsgCreateValidator – in a mutual understanding to receive 100% staking rewards, as his motive.
TFL, however, maintained – in a dossier of the full timeline of events, that the motivation behind their actions was to uphold the integrity and fairness of the airdrop, which was intended to benefit the whole crypto community, not just one individual. They also expressed their frustration and disappointment with Le’s delay and indecision, as they had been trying to resolve the issue for over eight months.
They said that they decided to go public with the situation because they felt that they had exhausted all other options and that they had a duty to inform the community about what happened.
Jimmy Le’s Position and Defense
In a reactionary post on Jan. 9, 2023, Le posted an X (formerly Twitter) thread, where he responded to TFL’s accusations and gave his side of the story. He said that he was shocked when he received the airdrop and that he initially thought that it was a scam or a mistake. He said that he contacted TFL via the appropriate channel and that he was willing to cooperate and return the funds but that he had some tax issues or concerns that needed to be clarified.
Le provided his evidence to counter TFL’s claims, such as the liquid portion of the airdrop that he returned to TFL, which amounted to about 10% of the total value. He also said that he did not undelegate or sell the vesting tokens that he received, which made up the remaining 90% of the airdrop. He said that he was waiting for the vesting period to end before he could return them to TFL, as he did not want to incur any penalties or fees.
He also shared some tax consultation documents that he had prepared and sent to TFL, as received via his counsel, showing that he may have to pay a huge amount in taxes on the airdrop, which he could not afford, were the IRS to audit his account from 2021-2022. He further cited the alleged South Korean arrest warrant for Do Kwon and other members of the TFL, and the possibility of the nonexistence of TFL in 2-3 years, as an alibi for his tax concerns.
Le explained that his main concern was the tax implications and liabilities of the airdrop, which he said were complicated and unclear. He said that he was trying to find the best and most legal way to handle the situation and that he was open to negotiating and settling with TFL.
So, on 9 November 2023, after a lot of back and forth, Le said he made TFL a counteroffer in lieu of the agreement proposal on the terms of settlement issued by Dentos, counsel to TFL, showing goodwill to return the funds.
Jimmy Le’s final post concluded with an expression of shock at TFL’s alleged smear campaign against him, and accusing him of being dishonest and unprofessional while they were still in the process of settlement.
He also alleged that he had since received multiple threats of lawsuits and, even worse, threats to his personal safety from Do Kwon – a TFL co-founder.
The Community’s Reaction and Opinion
The Terra airdrop controversy sparked much discussion and debate among the crypto community on various social media platforms, such as Twitter, Reddit, and Medium. Many people shared their views and opinions on the matter and expressed their support or criticism of either party.
Some of the main themes and sentiments that emerged from the conversation were:
P.S.: The following are the reactions, opinions, thoughts and comments of community members, and theirs alone. It does not represent or reflect, in any way, the position of DisruptionBanking. We’re merely presenting and analyzing the available facts for the reader’s digest.
● The Ethical And Legal Aspects Of The Airdrop
The situation involves differing opinions on whether Le has a moral and legal obligation to return funds mistakenly received, with some asserting that keeping the funds is greedy and damaging to Terra and LUNA’s reputation, while others argue that Le has the legal right to retain the funds and is acting prudently in a challenging situation created by TFL.
● The Trust And Reputation Of TFL And Le
On X (ex-Twitter), TFL received praise for transparency and accountability, being considered reputable, and having a strong vision for Terra and LUNA. Critics, on the other hand, notably Fatman, allegedly called out Do Kwon as being on a destructive path of fraud.
Final Thoughts
The Terra airdrop controversy is a not-so-complex one. The contentious issue surrounding it only shows different perspectives and arguments, and mostly, misunderstandings by both concerned parties – TFL and Le.
From the whole story, the way I see it, the main lessons and implications, for the crypto industry may include, but are not limited to:
- The importance and need to ensure the integrity and fairness of airdrops,
- The need and difficulty of addressing the tax and legal aspects of crypto transactions,
- And lastly, the impact and value of trust and reputation – which are lacking – in the crypto community.
Author: Ayanfe Fakunle
See Also:
Terraform Labs insider fights to bring Do Kwon to justice | Disruption Banking
