After the collapse of the stablecoin, the creator of Terra admits his wrongs. 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 he was “wrong” after a “brutal” collapse of his stablecoin. “I think the best way to heal the wounds is just, to be honest, and admit that I was wrong,” the South Korean youngster told the media for the first time since the terra crash. specialist Coinage from Singapore.
It all started well though. In 2018, this Stanford graduate, passed by Apple and Microsoft, launched his cryptocurrency with an idea in mind: to use blockchain technology to develop a more efficient payment system. To do this, he wants to base himself on a so-called stable cryptocurrency, whose price is in principle linked to that of a traditional currency, which guarantees investors certain durability in the very volatile world of cryptocurrencies.
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And the beginnings are promising. Does Kwon manage to raise nearly 40 billion dollars from renowned investors such as Polychain Capital or Arrington XRP? In April 2022, the value of terra reaches its highest. 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 of its value in 24 hours, spreading panic in an already feverish crypto-asset market.
A “Ponzi scheme”, according to its detractors
Very quickly, the stablecoin and its sister token Luna fall to zero, leading to losses of more than $500 billion in the market. The stability of certain so-called stable cryptocurrencies is not ensured by currency reserves, but by an algorithm that performs arbitrations according to the supply and demand of another cryptocurrency.
This is the case of terra, which is backed by the crypto asset developed by the Luna Foundation Guard. However, this token also collapsed. 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. Each time a terra token was created, part of the Luna cryptocurrency had to be destroyed to maintain its backing to the dollar.
And to keep up with demand, Do Kwon's company, Terraform Labs, was offering hefty interest rates. Ponzi scheme, denounce the detractors. “If demand collapses, then the price will fall to zero,” said Hilary Allen, professor of financial regulation at American University, based in the United States.
As a result, many small investors lose all their savings. “It is a characteristic of almost all crypto assets and therefore Terra/Luna should serve as a warning for all investors (entering the market of) crypto assets”, notes Hilary Allen. The South Korean authorities have since opened several criminal investigations around this case. Last month, South Korean prosecutors have raided the home of co-founder Daniel Shin on suspicion of illegal activities behind Terra's collapse.
Authorities also banned key former and current Terraform Labs employees from leaving the country and asked Do Kwon to notify them of his return. But in his interview with Coinage, the entrepreneur said he had not been contacted by prosecutors and 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, “They never accused us of anything.”
A few weeks after the collapse of Terra, he launched Terra 2.0 which nevertheless met the same fate as its predecessor: its value fell very quickly from 11 dollars to 2 dollars. 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 to say. “It's my home and it's where I feel the brightest future lies.”
But with multiple ongoing investigations, analysts say Do Kwon's plans for the future are unlikely to materialize. His name “now carries a + negative goodwill +”, analyzes Kelvin Low, professor of law at the National University of Singapore. “His involvement in a project is hurting him rather than helping him.”