Korean startup Uprise lost $20M shorting LUNA

The crypto custodial service and AI trading platform accomplished to lose nearly all of its customers’ assets by shorting the Terra Classic native token, LUNA.

The report exposed that Uprise, the South Korean crypto investment start-up platform, lost around 99% of its assets worth about $20 million when it got liquidated shorting the LUNA token.

Heybit, Uprise’s trading desk uses artificial intelligence (AI) trading system that was intended to reduce the risks associated with leveraged trading.

A report on local news outlet Seoul Economic Daily, on July 6, says that Uprise’s AI, which it calls a robo-advisor, made a catastrophic misread in May on the LUNA token as it fell quickly from $60 to fractions of a cent. The system shorted LUNA but got liquidated during the token’s bizarre price pumps along the way, leading to $20 million in customer losses and $3 million of its own losses. Uprise lost about 99% of its assets in total.

Most users of Uprise’s Heybit service are high-net-worth personalities and corporations who stake their crypto for yield created by the AI trading on futures markets. The firm has been backed by the Hashed crypto investment firm, Kakao Ventures, and several banks and venture capital firms.

The firm has postponed services but has not issued any official disclosure to its clients about the losses. An Uprise official confirmed to 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.”

Besides officially notifying its users, Uprise officials are also reportedly working on a recompense plan for its customers so that it can continue to operate.

With Uprise in the limelight, Seoul Economic Daily pointed out that it has not registered as a virtual asset service provider (VASP). It reported that Uprise officials feel that the firm is able to border the law requiring it to register as a VASP because it does not collect Korean Won nor directly invest in virtual assets, only futures.

Registration helps keep crypto exchanges in agreement with the notorious Travel Rule from the Financial Action Task Force.

Uprise is the newest centralized crypto service provider to reveal substantial losses stemming from the Terra incident and subsequent contagion. It joins BlockFi, Celsius, and Voyager Digital among the list of firms that have had to take radical measures to try and stay submerged. FTX US exchange has the option to buy BlockFi, Celsius has been unraveling debts, and Voyager filed for insolvency on July 5.