Earlier this week Korean Do Quon came out of self-imposed online obscurity in recent weeks with a tweet that drew controversy: “Decentralized networks need decentralized money,” he wrote, “it’s clearer now than ever.”

His tweet was met with outrage by users of a particular social network that Do Quon came to consider the “Elizabeth Holmes” of cryptocurrencies and provoked with his arrogant and often rude tweets, to which he refused to respond. critics because he doesn’t talk to the poor.

“How is this guy not in jail?” asked one question this week. “You should go to jail,” said another, “you are a thief,” wrote a third. “Where are you hiding; give us back our money,” said one of the 914 users who responded to Kwon’s tweet. Their anger at Do Kwon, co-founder and general counsel of Terraform Labs, is not unfounded – about $40 billion in market capitalization was lost almost overnight in May, when the value of TerraUSD and its sister cryptocurrency, the moon, collapsed, leading not only to huge financial losses, but even to suicide.In lawsuits filed against Terraform Labs and other companies, only two specific names are mentioned.One of them is Do Quon. Another, 30-year-old Greek N.P.

Acquaintance

Before Quon and NP, who didn’t answer the “K” questions, met at Stanford University in California, where they were both studying computer science, a degree that NP combined with mathematics. Mr. Kwon graduated from Stanford in 2015, three years later he founded the startup Terraform Labs, which previously had bases in Singapore and Korea. The goal of this particular company was to create an algorithmic stablecoin, a fixed-value cryptocurrency that would be “pegged” to a value of one dollar. The message from Terraform Labs was that no matter what the algorithmic fixed-value cryptocurrency becomes, it will always sell for around $1.00.

They did this by creating another sister cryptocurrency, the moon, which gave its holders ownership of the Terran network. The company created a protocol that included two cryptocurrencies – terraUSD and the moon – and, acting as a central bank, tracked the prices of the two currencies, balancing the price of terra by printing and selling the moon.

When the price of terraUSD exceeded one dollar, the protocol burned the moon and printed terraUSD, and vice versa. And so the goal of the company was to make real payments through decentralized networks using a certain, stable value, cryptocurrency.

Terraform Labs was founded by Daniel Shin, a Korean tech giant who primarily helped build the credibility of Terraform Labs’ venture capital project, as well as very important investors such as Lightspeed Venture Partners and Coinbase Ventures.

N.P. was the head of research at Terraform Labs. Together with Do Kuon and two other partners, they signed a company white paper that was published in 2019, and in June 2020, NP’s name is listed first on the Anchor system white paper that he signed with two other employees.

Anchor, an online money market fund developed by Terraform Labs, provided depositors with a fixed interest rate of 20% – this led to an explosion in demand for TerraUSD, which has become the 5th most popular cryptocurrency in the world, with the price of the moon reaching $119. . At the beginning of 2022, both currencies together were worth about $40 billion. But in early May and within two 24 hours, the value of both terraUSD and moon touched almost 0 when, as soon as the price of moon began to fall, investors abandoned both cryptocurrencies en masse, causing them to plummet.

“Pyramid”

Many accused Do Quon of building the “pyramid”, saying that he knew their proposals were untrue. Others believe that the collapse of terra-moon was “staged”, as very large amounts were withdrawn in May, which led to an initial devaluation of cryptocurrencies, and then to a panic of smaller depositors who, while withdrawing their deposits, chased their turn in absolute collapse of a particular crypt.

Du Quon, who has been described by people in the know and the media as both a genius and a narcissist and a “trash-talking businessman” as the New York Times described him in May, told the Wall Street Journal in June that he was making sure bets and how he spoke with confidence about this particular fixed-value cryptocurrency “because I believed in its longevity and its value proposition.” Despite what happened, he insists that he may have lost bets, but his actions are 100% consistent with his words – “there is a difference between failure and fraud,” he stressed. However, the fraud allegation is being investigated by Korean authorities who have taken steps to ban the company’s developers from leaving the country as their investigation into whether fraud was committed continues and Do Kuon, who is out of the country, is accused of tax evasion. . and ordered $80 million to be paid. Two lawsuits have already been filed in the United States of America, both against Terraform Labs and against Mr. Kuon, as well as N.P. specifically and by name, who can write on his LinkedIn that he worked at Terraform Labs until December 2020, but until Since then, he appears to be a founding member of the Luna Foundation Guard, an organization that will support and fund the Terra ecosystem to keep the cryptocurrency stable. One of the two lawsuits filed in the US alleges that Defendant NP wrote the opening statement “Introduction to Anchor” which was published by Terraform Labs on July 6, 2020. “The Anchor protocol was the main driver of the collapse of the Terra ecosystem,” the plaintiff claims. In June, law firm Scott + Scott argued, among other things, that the defendants violated provisions of the Exchange Act by implementing a plan, scheme, and course of conduct whereby TFL intended and defrauded retail investors to purchase Terra tokens at artificially inflated prices. Confirmed false statements that they knew or should reasonably have known were materially misleading, made false statements about material facts, and failed to report material facts necessary for the statements made not to be misleading.

“I saw them rising and I dived”

As the Terra ecosystem collapsed, people who had lost thousands of dollars started creating online communities, mostly on Reddit, to share stories of their losses with each other. Some wrote that they had lost $1,000, others $2,500, and some had much more, with one in particular claiming to have lost $200,000 due to the collapse of terra. In most of these groups, participants wrote suicide helplines in different countries, especially after the news that a man from Taiwan committed suicide days after the crash, and in doing so, he told relatives that he had moon-cryptocurrencies that was worth $2 million, lost 99% of its value in two days, leaving him $1,000. Angelos, a 35-year-old Greek who deals with cryptocurrencies, indicated in “K” how he had $2,500 in moon and $6,000 in terra. He lost everything. He only bought the cryptocurrencies in question last November: “I saw the value going up and I couldn’t take it, I took the plunge,” he says. “I was convinced by Anchor’s attractive bid,” he emphasizes. When the Terra ecosystem collapsed in May, it didn’t make it into groups created online. “I didn’t see anyone posting, I was just waiting for Do Quon’s announcements,” says Angelos.

“I locked myself in the house, I tried to think clearly and calmly, I tried to understand what happened, but I didn’t feel well, I couldn’t sleep,” notes on “K”. “It was very hard for me,” he adds, “because I lost most of my fortune.” Although he emphasizes that “this has never happened before in cryptocurrencies,” he states that he has not lost confidence in fixed-value cryptocurrencies.

The same opinion is shared by another Greek who had a terra-luna but wished to remain anonymous. “Because this mistake was made, the ecosystem can only get better,” indicated in “K”, “we are all clearly inside, realizing that this is a very big risk.” He himself was one of the lucky few – he was out of the ecosystem about three months before its collapse, but, like the Angel, got into it because of Ankor. “Nowhere else in the world was there such a yield for dollars – I converted them to the moon and took them out again just before the Russian invasion” due to volatility, and also because he saw that Anchor could not exist forever. “Because I also work in banks, when you see a 20% return, you say that this cannot last,” he emphasizes.

Some realized early on that the building was shaky

In the week of the crash, the Guardian newspaper wondered if this moment was the equivalent of Lehman Brothers cryptocurrencies. Just three weeks before the event, in an article about Do Quon, Bloomberg called him the “King of Lunatics,” a nickname given to him by thousands of his and Luna’s supporters, stating that these same supporters “transformed Quon’s vision of a stable digital currency that is easy to spend into real life and liberated from the clutches of Wall Street and government regulators in one of the biggest projects ever — with billions of dollars of cryptocurrencies tied into its ecosystem.”

On the other hand, of course, there have been critics since then who have pointed out that the 20% interest rate is a big “Ponzi scheme” – a pyramid scheme that will eventually collapse – and worried about how this will affect the broader cryptocurrency. . market. It seems that the impact was not insignificant. Cryptocurrency hedge fund 3AC filed for bankruptcy in June, influenced by the Terra/Luna fiasco, as 3AC invested more than $200 million in Luna in February when the Luna Foundation Guard was raising $1 billion. surprise,” Kyle Davis, co-founder of the fund, said in June. The bankruptcy of 3AC was followed by the bankruptcy of the Celsius platform, which many attribute to the withdrawal of money from Celsius by many users after the collapse of 3AC. This week, Singapore-based cryptocurrency financial institution Hodlnaut froze withdrawals, the latest sign of a wide-ranging crisis in the cryptocurrency space. However, knowledgeable people who they spoke with “K” they say the crisis is not equivalent to Lehman Brothers. “The turning point with Lehman Brothers was that we split entire banks into two smaller ones, an investment bank and a commercial bank, to introduce an element of risk, this was done as a reaction to the financial collapse, and I don’t see what is happening with cryptocurrencies” says one banker. “The crisis that prevails in the market does not have the ramifications that Lehman had, but I consider it identical to the dot-com collapse,” emphasizes K, a Greek with professional experience in a crypto hedge fund abroad. “This will separate healthy platforms from non-existent ones – many of the latter will disappear, as happened in 2000 with technology companies,” he emphasizes and is optimistic about the “crypto” market. “We will see the emergence of many unicorns (like Ethereum), as they did in 2000 with Amazon and Ebay, and new rules to help institutionalize the landscape,” he says.