“Right now, my role in the crypto industry is a little polarising,” observed Korean entrepreneur Do Kwon in April. “Because, you know, we’ve been making a lot of big moves. And that ruffles some feathers.”
Back then the so-called “King of Lunatics” was riding high, thanks to the soaring value of two cryptocurrencies: Luna and its sister “stablecoin”, TerraUSD. Kwon’s vision was to create a stable digital “ecosystem” free from “the tentacles of Wall Street and government regulators”, says Bloomberg.
Boosted by the endorsement of crypto heavy-hitters such as Mike Novogratz of Galaxy Digital, he appeared to be succeeding: an influx of retail investors helped push Luna’s price to an all-time high of $116 and the overall Terra universe evolved into one of the biggest blockchain projects to date, with billions of dollars tied up in it.
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The death spiral begins
Some critics likened it to “a ginormous Ponzi scheme”. The jury’s still out on that. But the devastating effect when both Luna and TerraUSD plunged into a market “death spiral” last week was arguably the same. “As the collapse of the Terra ecosystem” entered “its final, definitive stages”, signs of the real-world wreckage were impossible to miss, says CoinDesk. Luna backers globally reported “huge losses, despair and hopelessness”.
In Kwon’s home city of Seoul, there were fears of a rash of suicides prompting local police to strengthen patrols around key bridges as a preventative measure, reported The Korea Economic Daily. The fear extended to Kwon’s own household. His wife reportedly sought police protection after an unidentified man broke into their apartment building.
As Kwon, 31, surveys the wreckage of his nascent empire, he might reflect that “there have been few falls as sudden and humbling in business history”, says CoinDesk. It was certainly “the largest destruction of wealth… in a single project in crypto’s history”, says Charles Hayter of analytics firm CryptoCompare. At the start of last week, the project’s market capitalisation was $41bn. By Monday of this week, Luna’s value was zero; Terra was trading at $0.11.
Kwon’s ascent was as rapid as his decline. After attending Daewon Foreign Language High School in Seoul, he won a place at Stanford University to major in computer engineering, says The Korea Economic Daily. Jobs at Microsoft and Apple followed, but Kwon was increasingly hooked by the crypto craze and, in 2018, he returned to South Korea to found Terraform Labs with a fellow entrepreneur, Ticket Monster founder Shin Hyun-sung.
The pair quickly won backing for their idea of launching an “algorithmic” stablecoin – pegged to the US dollar but, unlike traditional stablecoins, not backed by dollar assets. The plan instead was to create a sister currency, Luna, whose fluctuations would help maintain the peg. An early investor was Dunamu, which operates South Korea’s largest crypto exchange.
Puerility is a red flag
Online, Kwon seemed “to relish stirring up trouble” with a persona built on “combative and at times puerile tweets”, says Bloomberg. He raised a “figurative middle finger” at SEC regulators and often dismissed critics as “cockroaches”. With hindsight, Kwon’s “vitriol” was “a huge red flag”, says CoinDesk.
So too, perhaps, was his hidden history – it emerges that he was “one of the pseudonymous co-founders of the failed algorithmic stablecoin Basic Cash, which crashed in 2021. “Now history seems to be repeating.” At the end of last week, Kwon broke his silence and apologised to Luna and Terra investors. “I am heartbroken about the pain my invention has brought on all of you.”
That may not be enough to stop a deluge of likely lawsuits and possibly criminal investigations.
Did Kwon really believe in his project, or was this “a lengthy and complex deception”? There’s still a good deal of unravelling to be done.
Jane writes profiles for MoneyWeek and is city editor of The Week. A former British Society of Magazine Editors editor of the year, she cut her teeth in journalism editing The Daily Telegraph’s Letters page and writing gossip for the London Evening Standard – while contributing to a kaleidoscopic range of business magazines including Personnel Today, Edge, Microscope, Computing, PC Business World, and Business & Finance.
She has edited corporate publications for accountants BDO, business psychologists YSC Consulting, and the law firm Stephenson Harwood – also enjoying a stint as a researcher for the due diligence department of a global risk advisory firm.
Her sole book to date, Stay or Go? (2016), rehearsed the arguments on both sides of the EU referendum.
She lives in north London, has a degree in modern history from Trinity College, Oxford, and is currently learning to play the drums.
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