Shorting LUNA costs South Korean AI firm Uprise $20M

YEREVAN (CoinChapter.com) — South Korean Fintech startup Uprise lost 99% of assets under management (AUM) after shorting LUNA when the Terra ecosystem collapsed earlier this year. 

According to a report by local media outlet Seoul Economic Daily, the artificial intelligence (AI) firm lost around $20 million in client funds. 

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Uprise places a disastrous gamble on LUNA

Uprise attracted large funds from investors when it revealed that its AI-backed automatic virtual asset trading services have high operational stability. 

By its design, the firm’s ‘robo-advisor product,’ dubbed HEYBIT, was to minimize the risks of leverage trading. 

In early May, the price of Terra’s native stablecoin UST depegged from the US dollar value. As a result, it sent the blockchain’s coin LUNA (now Luna Classic-LUNC) crashing down.

LUNA went from over $70 per token in less than a week to zero. The steep fall had prompted Terra validators to halt the network temporarily.

The crash also resulted in over $40 billion getting wiped out of the crypto market. Many industry giants, including Three Arrows Capital (3AC), Celsius, and CoinFlex, faced liquidity crises. 

Meanwhile, Uprise shorted LUNA, predicting the price to keep falling constantly. 

While the price of LUNA crashed, brief price spikes proved disastrous. Finally, the price pumps midway pushed the system into liquidation. Other than the 26.7 billion won (about $20.5 million) it lost from the customer funds, it had to part with an additional 3.9 billion won (about $3 million) from its funds.

Before the forced liquidation, the virtual asset investment fund had a net worth of 26.7 billion won, about $20.5 million. 

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Uprise promises compensation for losses  

The company’s services are reportedly divided into two categories. Under ‘trading,’ Uprise used the clients’ funds to place bets in the futures market. As part of its ‘harvest’ policy, the firm would use customer assets to make deposits while giving them returns. 

After the trading service suffered large losses due to shorting LUNA, Uprise temporarily suspended its services. However, it is yet to issue an official disclosure to its clients.

As  Sedaily reported, the clients of Uprise were all seasoned investors and were perfectly aware of the risks involved in investing. 

KB Investment, Shinhan Venture Investment, and other leading venture capitalists in South Korea were among its clients. 

Nonetheless, the company is looking to offer compensation for the losses.

“Due to great unexpected volatility in the market, there has been damage to customer assets. We plan to finalize the report on our virtual asset business soon,” 

Seoul Economic Daily quoted an Uprise official saying. 

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Failing to register with VASP could spell trouble 

To make matters worse for Uprise, it allegedly failed to register as a ‘virtual asset service provider’ (VASP). According to the Specific Financial Information Act, the company is supposed to report all details about the sale, purchase, or transfer of virtual assets. 

The law came into force in September of 2021 and aims to combat money laundering, financing of terrorism through financial transactions, etc.

However, Uprise argues it has not violated the law by not reporting as VASP as it does not collect won, nor does it invest in virtual assets.

CryptoWhale: Korean crypto startup Uprise claims it lost $20M of its clients' funds (99%) by shorting LUNA during its price crash.

Imagine shorting this and losing money… pic.twitter.com/qgCXqHFNUP

— Faisals Crypto News (@faisalscrypto) July 6, 2022

Market participants love crypto price gyrations as they provide an opportunity to place creative bets. However, the risks involved sometimes stump even the most experienced of traders. 

In Uprise’s case of shorting LUNA, the charts favored it. However, the constant fall in its price made it evident that the token was in a freefall. 

In essence, the Korean AI Startup’s call to bet against the price would have made perfect sense had it not been for the time-to-time price surges. 

While the token never recovered significantly, the negligible price actions were enough to wipe off Upside’s assets. 

Even in falling prices, crypto price gyrations make trades dangerous. Uprise has learned it the hard way.