The founder of the Terra blockchain, which collapsed in mid-May, has just admitted responsibility for the collapse of the terra usd stablecoin.
This will result in investors losing $40 billion and more than $500 billion in the cryptocurrency market. Do Kwon, 31, co-founder of terra usd (ust) stablecoin, admitted he was “wrong” after his stablecoin’s “violent” crash.
“I think the best way to heal wounds is to just be honest and admit that I was wrong,” a South Korean youth told the media for the first time since the terra catastrophe, a Coinage specialist from Singapore.
Everything started well though. In 2018, this Stanford graduate who worked for Apple and Microsoft launched his cryptocurrency with one idea: use blockchain technology to develop a more efficient payment system.
To do this, he wants to rely on the so-called stable cryptocurrency, the price of which is in principle linked to the price of the traditional currency, which guarantees investors a certain stability in the very volatile world of cryptocurrencies.
And a promising start. Prior to Kwon, he managed to raise almost $40 billion from well-known investors such as Polychain Capital or Arrington XRP. In April 2022, the cost of terra reaches its maximum. According to Coinmarketcap, it is the fourth largest stablecoin and the tenth most valuable cryptocurrency by market value.
But things start to go downhill. A month later, terra lost more than half its value in 24 hours, spreading panic in an already hectic crypto asset market.
Very quickly, the stablecoin and its twin token, luna, fell to zero, resulting in over $500 billion in losses in the market.
The stability of some so-called stable cryptocurrencies is provided not by foreign exchange reserves, but by an algorithm that performs arbitrage in accordance with the supply and demand of another cryptocurrency.
This is the case of terra, which is backed by a crypto asset developed by the Luna Foundation Guard. However, this token also collapsed. The domino effect occurs immediately: investors panic and try to withdraw their money.
Critics have long warned against this system, which they considered structurally flawed. In fact, every time the terra token was created, part of the Luna cryptocurrency had to be destroyed in order to maintain its support for the dollar.
And to keep up the demand, Do Kwon’s company, Terraform Labs, offered high interest rates. Ponzi scheme, denounce detractors. “If demand collapses, the price will drop to zero,” said Hilary Allen, professor of financial regulation at American University in the US. As a result, many small investors lose all their savings.
“This is a feature of almost all crypto assets, and therefore Terra / Luna should serve as a warning to all investors (entering the market) of crypto assets,” notes Hilary Allen.
Since then, South Korean authorities have launched several criminal investigations into the case. Last month, South Korean prosecutors ransacked the home of co-founder Daniel Sheen on suspicion of illegal activities behind Terra’s collapse.
“This is my home”
Authorities also banned key former and current employees of Terraform Labs from leaving the country and asked Do Kwon to notify them of his return.
But in an interview with Coinage, the entrepreneur said that he was not contacted by the prosecutor’s office and did not decide whether he would return to South Korea for cooperation.
“It’s a little difficult to make this decision because we have never been in contact with the investigators,” he said, adding: “They never accused us of anything.”
A few weeks after the collapse of Terra, he launched Terra 2.0, which, however, suffered the same fate as its predecessor: its cost very quickly fell from $11 to $2.
Despite his guilt, Do Kwon says he still believes in his cryptocurrency.
“I will always be doing something around Terra and for the Terra community,” Kwon continues. “This is my home, and I feel that the brightest future is here.”
But analysts say that due to multiple investigations, Do Kwon’s plans for the future are unlikely to materialize. His name “now carries a negative reputation,” analyzes Kelvin Lowe, professor of law at the National University of Singapore. “His involvement in the project harms him rather than helps him.”