Who is Do Kwon?
Do Kwon is a South Korean cryptocurrency developer who co-founded and is the CEO of the Singapore-based Terraform Labs. Terraform Labs is the company behind the Terra blockchain, which features the stablecoin TerraUSD (UST) and the network token LUNA.
Terra was born in an Airbnb apartment
Do Kwon graduated from Stanford University with a degree in computer science in 2015, according to his LinkedIn page. Little is known about his private life and college years, but a website created by Do Kwon says he worked at a Microsoft "business partner" and Apple. However, these two tech giants could not keep the 9x engineer for more than three months because the job was described by Kwon as "boring".
Do Kwon returned home and founded his first startup project Anyfi in 2016, which is a peer-to-peer communication solution using mesh network technology. This idea quickly helped him receive a million USD in funding from angel investors and the Korean government.
His research into distributed technology led him to blockchain. In 2017, seeing the cryptocurrency market explode with no real value in use, Do Kwon decided to join with the aim to create more positive changes.
At an Airbnb apartment in 2018, along with his college friend Nicholas Platias, Do Kwon wrote the first lines of a decentralized payment system, with the idea that even an average person could use it. Terraform Labs was born like that. The word "Terra" is inspired by the character Terran in the StarCraft game that Kwon loves. The character is described as "excellent in adapting to any situation".
Terra was backed by crypto giants
Initially, Terraform Labs was a huge success when it attracted 2.5 million users and received $150 million in funding from investors like Arrington Capital, Pantera Capital, and Galaxy Digital.
In August 2018, the project raised another $32 million to create a "modern financial system on the blockchain," according to VentureBeat. The company was backed by four of the six largest crypto exchange giants in the world at the time: Binance, OKX, Huobi Group, and Upbit.
But this success was just the beginning for the young engineer. "I wanted to expand the reach even further, not just focusing on a single product, but an overall economy with more than one company," said Do Kwon.
He continued to build UST, a digital currency that aims to maintain the value of 1 UST= $1 through a "mint/burn" mechanism. "It offers a better experience, which other currencies are lacking," he said.
LUNA - UST: the "death spiral"
Unlike stablecoins like USDT which are backed by real money, UST is an "algorithmic stablecoin", using the LUNA token itself to keep the balance. One UST is born by burning one USD worth of LUNA.
To promote UST, Do Kwon built a digital ecosystem using the Terra blockchain, with similar applications in the traditional financial market.
For example, their Anchor platform serves as a bank, allowing users to deposit and receive interest, with the interest rate close to 20%, which is many times higher than conventional banks. Besides, they have the Mirror platform to create digital assets based on real assets, to help users transact in the digital environment anytime and anywhere.
However, Mirror got Do Kwon "whistled" by the US Securities and Exchange Commission (SEC) for putting the shares on the platform without registration, while Anchor was suspected of being a Ponzi scheme because of its high-interest rates.
From the beginning, crypto experts were skeptical that an algorithm would keep the twin cryptocurrencies LUNA-UST stable. In 2018, Cyrus Younessi, an analyst for the crypto investment firm Scalar Capital said that Kwon’s project could enter a "death spiral" in which a crash in LUNA’’s price would bring the stablecoin down with it. “This is crazy,” he said in an interview. “This obviously doesn’t work.”
As LUNA became popular, the objections grew louder. Charles Cascarilla, a founder of Paxos, a blockchain company that offers a competing stablecoin, cast doubt on this algorithmic technology. Do Kwon responded by taunting him on Twitter: “Wtf is Paxos.” Kevin Zhou, a hedge fund manager, repeatedly predicted that the two currencies would collapse.
Wtf is Paxoshttps://t.co/yhnZBAqDEs— Do Kwon 🌕 (@stablekwon) April 18, 2022
In the wake of concerns about the stability of the UST, earlier this year, a non-profit organization that Do Kwon runs sold $1 billion of LUNA to investors to buy Bitcoin — a reserve designed to keep the price of UST stable if the market crashed.
The LUNA-themed tattoo by a Lunatics
But despite the skepticism, the venture investment kept pouring money to fund projects built on LUNA’s underlying technology. Investors including Arrington Capital and Coinbase Ventures invested more than $200 million between 2018 and 2021, according to PitchBook, which tracks funding.
In April, LUNA’s price peaked at $116 from less than $1 in early 2021, creating a generation of crypto millionaires. A community of retail traders called "Lunatics" formed around the coin, hailing Do Kwon as a hero. Mike Novogratz, chief executive of Galaxy Digital, which invested in Terraform Labs, expressed his support by getting a Luna-themed tattoo.
I’m officially a Lunatic!!! Thanks @stablekwon And thank you my friends at Smith Street Tattoos. pic.twitter.com/2wfc00loDs— Mike Novogratz (@novogratz) January 5, 2022
The father of Terra gloated on social media. Also in April, he tweeted that he had named his newborn daughter Luna, "My dearest creation named after my greatest invention."
The impressive successes from Terra helped Do Kwon make it to Forbes’ 30-under-30 list, and two years later he was among the 10 most influential people in the crypto space, according to CoinDesk. In an article about him at the time, the newspaper described him as "smart, nerd, wanting to do things that bring real value".
"I don’t debate the poor"
However, unlike the humble public image of other crypto billionaires like SBF or CZ, Do Kwon carried himself with confidence, especially criticizing his competitors and detractors on social media.
In a tweet in December, 2020, he criticized investors who were putting money into other stablecoin projects, saying that UST was the oldest and most widely used stablecoin in existence. "Bow before the king," he tweeted.
While DeFi degens are busy trapping retail in zero sum games in @emptysetsquad @BasisCash, recall the only real stabilizing force in algo stablecoins is growing adoption and usage@terra_money is the oldest and most widely used algo stablecoin in existance— Do Kwon 🌕 (@stablekwon) December 30, 2020
Bow before the king
Do Kwon also called opponents of UST and LUNA "poor" and said they would "stay poor" for not supporting him or his cryptocurrencies. In July 2021, the British economist Frances Coppola criticized decentralized finance, in response to this, he said, "I don’t debate the poor on Twitter, and sorry I don’t have any change on me for her at the moment."
I don’t debate the poor on Twitter, and sorry I don’t have any change on me for her at the moment.— Do Kwon 🌕 (@stablekwon) July 1, 2021
In 2021, after receiving a subpoena from the SEC during a blockchain event, Do Kwon even sued the SEC for violating the rules. And earlier this year, when some Twitter accounts predicted that LUNA’s price would plummet, he spent $11 million to make a bet with them because he believed "his greatest creation" would be worth over $88 by March 2023.
"The death" of LUNA and UST
One day in late April, Kwon said that "there’s also entertainment in watching companies die." Ironically, eight days later, the whole market watched that scenario happen to his own coins.
Do Kwon: "95% are going to die [coins], but there's also entertainment in watching companies die too"— Pedr🌐 (@EncryptedPedro) May 11, 2022
8 days ago. Ironic. pic.twitter.com/fEQMZIyd9a
On May 7, 85 million UST was liquidated by one user, making the price of this coin unstable. Although it is only 2% down from the one-dollar peg, this is a big deal for a coin that should have been stable. However, Do Kwon remained calm, he tweeted, "Anon, you could listen to CT influensooors about UST depegging for the 69th time. Or you could remember they're all now poor, and go for a run instead. Wyd."
I’m up - amusing morning— Do Kwon 🌕 (@stablekwon) May 7, 2022
Anon, you could listen to CT influensooors about UST depegging for the 69th time
Or you could remember they’re all now poor, and go for a run instead
But he did not stay optimistic for long. In just one week, $45 billion in Terra crypto market capitalization was blown away. From the ATH of $116, LUNA became almost worthless, while UST fell to $0.06. Terraform Labs implemented remedies such as burning LUNA, and liquidating Bitcoins in the reserve.
However, adding billions of dollars worth of Bitcoin to the market on May 10 caused the price of this coin to decrease, along with other objective reasons, pulling the entire market down.
Who is left holding the bag?
"The fall from the throne" of LUNA and UST is a living example of crypto hype and who is left holding the bag when it all comes crashing down. Do Kwon’s popularity was enabled by high-profile financiers who were willing to back highly speculative financial products. Some of those investors sold their LUNA and UST early, gaining huge profits, while retail traders are now left with substantial losses.
Pantera Capital, a hedge fund that invested in Terra, made a profit of about 100 times its initial investment, after selling about 80 percent of its holdings of LUNA over the last year, said Paul Veradittakit, an investor at the firm.
Binance didn’t have that luxury. CZ, the founder of the crypto exchange Binance, which invested in Terraform Labs, said his firm had bought $3 million of LUNA, which grew to a peak value of $1.6 billion. But Binance never sold its tokens. Its LUNA holdings are currently worth less than $3,000.
That loss is still only a drop in the bucket for a company as large as Binance, whose U.S. arm is valued at $4.5 billion. Much of the pain of the crash has instead been felt by retail traders. On a Reddit forum for LUNA supporters, users shared lists of suicide hotlines, as people who had put their savings into LUNA or UST expressed despair.
After the collapse, South Korean media outlet MoneyToday wrote that an unidentified man broke into Do Kwon’s apartment building. Kwon’s wife has now been provided with security after she requested emergency protection.
And for the first time, people seemed to see him being humble, saying: "I am heartbroken about the pain my invention has brought on all of you." However, when investors questioned whether Terraform Labs would be able to support those affected by the LUNA-UST crash, Do Kwon said the company had already lost $30 billion so that was impossible.
Kathleen Breitman, a founder of the crypto platform Tezos, said the rise and fall of LUNA and UST were driven by the irresponsible behavior of the institutions backing Do Kwon.
“You’ve seen a bunch of people trying to trade in their reputations to make quick bucks,” she said. Now, she added, “they’re trying to console people who are seeing their life savings slip out from underneath them. There’s no defense for that.”
The attempt to save Terra
After the plunge of UST, CoinDesk revealed another scandalous story about the founder of Terra. In 2020, Do Kwon was suspected of using the pseudonym "Rick Sanchez" to help create the failed stablecoin project Basis Cash.
The failed algorithmic stablecoin shared similarities with his other project: UST. Like UST, Basis Cash was designed to maintain a tie to the U.S. dollar through code instead of by holding reserves in cash and other less risky assets. But Basis Cash never reached its dollar value, and its developers abandoned it.
Meanwhile, unable to watch the death of his brainchild, Do Kwon planned to rescue Terra. His proposal would fork Terra into a new chain without UST or any algorithmic stablecoin elements. This would be called Terra, while the original chain would be Terra Classic (alongside Luna Classic, or LUNC).
Do Kwon’s proposal was met with disapproval in a preliminary vote on Terra’s community forum. Many would prefer he listened to CZ’s suggestion to buy and burn most of LUNA’s hyperinflated circulating supply of 6.5 trillion tokens. The proposal, however, was passed. Terra 2.0 was released on May 28, and LUNA immediately peaked at nearly $20, but was now just over $2, according to CoinMarketCap.
It is unknown what the future holds for LUNA, but the halo around Do Kwon and his project has faded. He is facing legal prosecution in South Korea, where the Seoul Southern District Prosecutors’ Office said that it has kicked off an investigation into Terraform Labs. The announcement came a day after five Korea-based crypto investors with combined damages of about $1.1 million filed criminal complaints against Do Kwon over charges of fraud and other violations of financial regulations.
Moreover, The Block reported Terraform Labs’ in-house legal team has resigned in the wake of the UST and Luna collapse, putting Do Kwon in a difficult position before legislation. However, he announced he was ready to face any lawsuits and legal issues from the authorities because he has done nothing wrong and had nothing to hide.
Sources: The New York Times, Fortune, Knowinsider, Decrypt