Do Kwon, the creator of the Luna and TerraUSD cryptocurrencies, has become one of the most hated men in South Korea after a Seoul court this week issued an arrest warrant for him over his alleged role in the collapse of the global cryptocurrency market earlier this year.
The sudden collapse of cryptocurrencies in May triggered billions of dollars in losses from investors large and small, prompting South Korean authorities to issue an arrest warrant for Kwon on Wednesday. As co-founder and CEO of cryptocurrency ecosystem Terraform Labs, Kwon faces charges of exchange violations and fraud.
JUST IN: 🇰🇷 South Korean authorities seek lifting #terra Co-founder Do Kwon’s Passport
>>> The South Korean Foreign Ministry has now asked Do Kwon to return his passport.
September 14 Do Kwon and five other people received an arrest warrant pic.twitter.com/ETzasAiAwA
— OAK Chain (@oakchain_) September 15, 2022
The digital sector is still resonating with the company’s devastating financial losses and spectacular demise that have made the 30-year-old crypto entrepreneur arguably the most hated man in South Korea. Adding to the scandal is that Kwon has become a fugitive.
“The finance guru of a cult”
Seoul authorities, meanwhile, suspect he is hiding in Singapore, as Kwon has offices in the Asian city-state, which has no extradition treaty with South Korea.
They are hesitating between several options for rescuing the engineer from hiding, the Financial Times said, and have floated the idea of canceling his passport or asking Interpol to issue a red alert – either of which would affect the fugitive’s ability to travel.
Due to the scale of the financial damage South Koreans have suffered, mostly from the fall of Kwon’s crypto empires, Seoul is determined to do whatever it takes to bring him to justice. In total, almost 200,000 people lost money after investing in Luna or TerraUSD. Hashed — a powerful investment fund specializing in digital assets that suffered $3 billion in losses — was among them.
Understanding why so many have bet on Kwon has a lot to do with the power of social media – he’s managed to attract a huge network of followers. “He was almost like a cult’s financial guru,” Donghwan Kim, a South Korean investment adviser, said in an interview with the Financial Times.
From Stanford to the ruthless world of cryptocurrencies
Kwon had the profile of a computer genius. He graduated with a computer engineering degree from Stanford University in 2015 at the age of 24, before going on to work for two Silicon Valley giants: Microsoft and Apple.
Three years later, he embarked on the cryptocurrency path by founding TerraUSD and Luna. The former was a “stablecoin”, a cryptocurrency whose value is linked to the price of another asset and is therefore considered “stable”. In the highly volatile and reckless world of Bitcoin and Ethereum, these cryptocurrencies – the most famous of which is Tether – are considered safe havens, which makes them attractive to investors.
The price of stablecoins hardly fluctuates since they are usually pegged to real currencies with low volatility like the dollar. However, this was not the case for TerraUSD, which was indexed on Luna, the other cryptocurrency created by Kwon. The latter should ensure the stability of the system thanks to in-house algorithms.
Eventually, these algorithms failed, causing the two cryptocurrencies to fall in May. But back when Kwon developed them in the late 2010s, algorithmic finesse didn’t matter that much. Cryptocurrencies were trending among unsuspecting investors, and Kwon’s larger-than-life personality set Luna apart from the competition.
“Do Kwon quickly realized that he was playing this role [the larger-than-life personality] would make it easier to get noticed about himself and his projects,” said tech news site The Verge.
“I don’t argue with the poor”
On Twitter, Kwon spent most of his time confronting his competitors and critics. In May 2021, when an economist questioned Kwon how TerraUSD’s algorithms would be used, he replied, “I don’t argue with the poor.” When asked where the hundreds of millions of dollars that Kwon allegedly had in reserve to make TerraUSD came from to support, an investor was told “Of course from your mother”.
I don’t discuss the poor on Twitter, and I’m sorry I don’t have loose change with me for them at the moment.
– Mach Kwon 🌕 (@stablekwon) July 1, 2021
Kwon’s displays of arrogance and disgust weren’t just limited to Twitter. A few days before Luna crashed, Kwon stated on YouTube that “95% of cryptocurrency projects will crash,” before adding that it “will be fun to watch.”
The comments gave Luna supporters the impression that Kwon believed he was above the rest of the crypto pack and that he was fighting tooth and nail for their interests against an outside world that just didn’t get it, the New York Times reported.
“It’s a cult mentality with a leader who has a larger than life personality and at the same time has a very seductive confidence,” Brad Nickel, a cryptocurrency podcast host, told the New York Times.
Kwon’s most fanatical admirers even called themselves “Lunatics” and named themselves after Luna. One of them, Mike Novogratz, the CEO of the mutual fund Galaxy Investment Partners, even got one Luna tattoo.
But things began to unravel when Do Kwon tried to attract new followers by offering a program that paid Terra holders an astronomical 20 percent interest a year.
Luna/Terra’s popularity exploded in South Korea, where the offering attracted tens of thousands of wholesale and retail investors. As more and more TerraUSDs circulated, the value of the currency plummeted and the algorithmic mechanism used to stabilize the price didn’t work. The whole thing imploded within a few days.
Many small investors were caught up in the consequences.
“I tried my best to always put some money aside, but with inflation in South Korea, traditional bank investments didn’t pay off,” said Ji-hye, a South Korean office worker lured by the prospect of a 20 percent return, said the Financial Times. “First I saw the value of my savings skyrocket, so I bet everything on Luna. And in the end I lost everything.”
In South Korea, the shockwaves from Luna’s collapse were so great that online searches for the Mapo Bridge — a bridge in Seoul known as one of the top suicide spots — skyrocketed, the Financial Times reported. The police had even stepped up their patrols in the area over the summer.
It quickly became a debacle for the entire cryptocurrency industry. “Terra’s disruptions have accelerated the price decline,” Nathalie Janson told FRANCE 24 in May. “In total, $40 billion has been wiped out of the cryptocurrency world by this scandal.”
However, this did not discourage Kwon. Shortly after his venture’s resounding failure, he was back at it and proposed the creation of Luna 2 on the condition that investors would lend him money again. This time, however, the “crazy ones” did not follow their guru.
This article has been translated from the original into French.