Crypto Custodial Service and AI Trading Platform Lose Customers' Funds Trading Terra Classic
The crypto custodial service and the AI trading platform lost all of their customers’ funds trading Terra Classic, a coin belonging to Terra.
Uprise, a crypto investment startup platform in South Korea, reportedly lost about $20 million worth of assets when it was liquidated after shorting the LUNA token.
Heybit, a Uprise trading desk, utilizes an AI trading system that was created to decrease the dangers of leveraged trading.
Seoul Economic Daily reported that Uprise’s AI, which it calls a robo-advisor, made a terrible mistake in May when it misread the LUNA token as it plummeted from $60 to fractions of a cent. The system had shorted LUNA but got liquidated during the token’s erratic price surges, resulting in $20 million in customer losses and $3 million of its own losses. Uprise lost about 99% of its assets.
Heybit is a futures trading service provided by Uprise, which is mostly used by high net worth individuals and businesses who stake their cryptocurrency for profits generated by the AI's trading. The project has been supported by Hashed, Kakao Ventures, and several banks and venture capital firms.
The firm has suspended services, but has not released an official statement to its clients about the losses. An Uprise official told Seoul Economic Daily that:
“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.”
Uprise officials are reportedly developing a compensation plan for its customers to ensure that it can continue operating.
When Uprise became a trending topic, Seoul Economic Daily reported that the company has not registered as a virtual asset service provider (VASP). The news outlet also said that Uprise's officials think they can avoid registering as a VASP because they do not collect Korean Won nor directly invest in virtual assets, but only futures.
The Travel Rule, which is a well known rule from the Financial Action Task Force, helps crypto exchanges stay in compliance with the requirements of registration.
Uprise is the latest centralized crypto service provider to reveal significant losses stemming from the Terra incident and subsequent contagion. It joins BlockFi, Celsius, and Voyager Digital as companies that have had to take drastic measures in order to try and stay afloat. FTX US exchange has the option of buying BlockFi, Celsius has been unwinding loans, and Voyager filed for bankruptcy on July 5th.