The South Korean founder of the stablecoin has come out of silence, three months after his devastating crash.
(illustration) (AFP / JUNG YEON-JE)
It will have caused investors to lose $40 billion and more than $500 billion in the cryptocurrency market. Do Kwon, 31, co-founder of TerraUSD, admitted that he was “wrong” after a “brutal” collapse of his stablecoin.
“I think the best way to heal wounds is to be frank and admit that I was wrong,” the young South Korean told the media for the first time since the accident at Terra, a Coinage specialist from Singapore.
Although everything started well. In 2018, this Stanford graduate, who has worked for Apple and Microsoft, launched his cryptocurrency with one idea in mind: to use blockchain technology to develop a more efficient payment system.
For this, it wants to base itself on a so-called stable cryptocurrency, whose price is in principle linked to that of a traditional currency, which guarantees investors a certain durability in the very volatile world of cryptocurrencies.
And the beginnings are promising. Do Kwon manages to raise close to $40 billion from renowned investors like Polychain Capital or Arrington XRP.
In April 2022, the value of terra reaches its highest point. According to CoinMarketCap, it is the fourth largest stablecoin and the tenth largest cryptocurrency by market value.
But things will start to go downhill. A month later, terra lost more than half its value in 24 hours, sowing panic in an already feverish crypto market.
Very quickly, the stablecoin and its sister token Luna drop to zero, leading to losses of over $500 billion in the market.
The stability of certain so-called stable cryptocurrencies is not ensured by currency reserves, but by an algorithm that arbitrages according to the supply and demand of another cryptocurrency.
This is the case of terra, which is backed by the cryptoactive developed by Luna Foundation Guard. However, this token also crashed. The domino effect is immediate: investors panic and try to withdraw their money.
Critics had long warned against this system, which they considered structurally flawed. In fact, every time a terra token was created, part of the Luna cryptocurrency had to be destroyed to maintain its backing against the dollar.
And to keep up the demand, Do Kwon’s company, Terraform Labs, offered high interest rates. Ponzi scheme, detractors denounce.
“If demand collapses, then the price will drop to zero,” said Hilary Allen, a professor of financial regulation at the US-based American University.
As a result, many small investors lose all of their savings.
“It is a feature of almost all crypto assets and therefore Terra/Luna should serve as a warning to all investors (entering the market for) crypto assets,” Hilary Allen notes.
Since then, South Korean authorities have opened several criminal investigations into the case.
Last month, South Korean prosecutors raided the home of co-founder Daniel Shin on suspicion of illegal activities behind the terra collapse.
The authorities also prohibited former and current key Terraform Labs employees from leaving the country and asked Do Kwon to notify them of his return.
But in his interview with Coinage, the businessman said prosecutors had not contacted him and he had not decided whether he would return to South Korea to cooperate.
“It’s a bit difficult to make this decision, because we have never been in contact with the investigators,” he said, adding: “We were never charged with anything.”
A few weeks after the collapse of Terra, he launched Terra 2.0, which, however, suffered the same fate as its predecessor: its value fell very quickly from $11 to $2.
Despite his mea culpa, Do Kwon says he still believes in his cryptocurrency.
“I’m always going to do things around Terra and for the Terra community,” Kwon continues. “It’s my home and it’s where I feel the brightest future lies.”
But with multiple investigations underway, analysts say Do Kwon’s plans for the future are unlikely to materialize.
His name “now carries a +negative goodwill+,” says Kelvin Low, a law professor at the National University of Singapore. “Your involvement of his in a project is hurting him instead of helping him.”
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