Do Kwon, the creator of the Luna and TerraUSD cryptocurrencies has been targeted by a South Korean arrest warrant since Wednesday, September 14. Partly responsible for the collapse of the global cryptocurrency market this summer, he has become one of South Korea’s most hated men.
It has lost billions of dollars to investors big and small. On Wednesday September 14, the South Korean authorities issued an arrest warrant against Do Kwon, the creator of the Luna and TerraUSD cryptocurrencies, whose sudden collapse in May had a global impact. He is accused of violations of stock market rules and fraud.
JUST IN: ???????? South Korean authorities seek to void #Terra cofounder Do Kwon’s passport
>>> The South Korean Ministry of Foreign Affairs has now asked Do Kwon to return his passport.
September 14 Do Kwon & five other individuals received an arrest warrant pic.twitter.com/ETzasAiAwA— OAK Chain (@oakchain_) September 15, 2022
Because, since this debacle, which has made the thirty-something most hated man from South Korea, he is nowhere to be found, except on Twitter where it continues to rage to apologize and promise a triumphant return. Seoul suspects he may have been hiding in Singapore. A choice that may seem logical: Do Kwon has offices in the Asian city-state which, moreover, has no extradition treaty with South Korea.
“The financial guru of a cult”
The South Korean authorities are hesitating between several avenues to bring the engineer out of hiding, says the Financial Times. They raised the idea of having their passport canceled or asking Interpol to issue a red notice – two hypotheses which would considerably reduce the possibilities for the fugitive to travel.
Seoul wants to do everything to judge Do Kwon, because the South Koreans have suffered particularly financially from the collapse of this entrepreneur’s cardboard crypto-empires. In total, nearly 200,000 people have lost money investing in Luna or TerraUSD. Among them, Hashed – a powerful investment fund specializing in digital assets – suffered three billion dollars in losses.
If so many individuals have bet on the financial products created by Do Kwon, it is because before being public enemy number 1 (or almost) of an entire country, he had managed to create a vast network of followers. “He was almost like a cult’s financial guru,” said Donghwan Kim, a South Korean investment adviser interviewed by the Financial Times.
From Stanford to the ruthless world of cryptocurrencies
Do Kwon has the profile of the perfect computer genius. He obtained a degree in computer engineering from the prestigious American university of Stanford at the age of 24 in 2015 and then worked for some time for two behemoths in Silicon Valley: Microsoft and Apple.
Three years later, he decided to embark on the cryptocurrency adventure by founding TerraUSD and Luna. The first one was a “stablecoin”, that is, a cryptocurrency whose value hardly varies. These safe havens – the most famous of which is Tether – are very attractive to investors in the ruthless and highly volatile universe of bitcoins and other ethereums.
The price of “stablecoins” hardly moves because they are generally indexed to real currencies that are not very volatile, such as the dollar. But not in the case of TerraUSD, which was pegged to Luna, the other “made in” Do Kwon cryptocurrency. It was she who was supposed to ensure the stability of the system thanks to homemade algorithms.
How did these algorithms work? Visibly badly, as demonstrated by the descent into hell of these two cryptocurrencies. But in the late 2010s, when they were developed, algorithmic niceties didn’t matter much. Cryptocurrencies were all the rage among unsuspecting investors, and Do Kwon’s XXL personality set his Luna apart from the competition.
Because every story needs a villain, and “Do Kwon very quickly understood that by playing this role he would more easily draw attention to himself and his projects”, explains the site specializing in new technologies. The Verge.
“I don’t argue with the poor”
This is what he did on Twitter where he spent his time looking down on his competitors and detractors. To an economist who questioned the functioning of his algorithms in May 2021, he replied “I do not argue with the poor”. An investor who wanted to know where the hundreds of millions of dollars that Do Kwon claimed to have in reserve to secure TerraUSD came from was retorted “from your mother of course”.
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
Do Kwon didn’t play the role of the obnoxious character only on Twitter. Just days before Luna’s collapse, Do Kwon was still mocking on YouTube about “95% of cryptocurrency projects going to bust.” Before adding that this carnage “will be entertaining to watch”.
This aggressiveness and arrogance gave Luna followers the impression that Do Kwon was above the rest and that he was defending their interests tooth and nail against the outside world who had understood nothing, says the New York Times. It’s a “cult mentality with a leader who has an overwhelming personality and is at the same time very seductive in his confidence,” says Brad Nickel, a podcast host specializing in cryptocurrencies, interviewed by The New York Times.
Do Kwon’s most fanatical admirers even called themselves the “Lunatics”. One of them, Mike Novogratz, the CEO of the investment fund Galaxy Investment Partners, was even made a tattoo to the glory of Luna.
ruined lives
But everything started to go wrong when Do Kwon wanted to attract new followers by proposing a program that remunerated Terra holders at an astronomical rate of 20% per year.
The popularity of Luna/Terra then exploded, attracting tens of thousands of investors and small savers, particularly in South Korea. There were more and more TerraUSD in circulation which made its value plunge and the algorithmic mechanism planned to stabilize the price did not work… The whole edifice collapsed in a few days.
“I was trying my best to always put some money aside, but with inflation in South Korea, traditional bank investments weren’t bringing in anything,” Ji-hye, a veteran, told the Financial Times. South Korean office worker who, attracted by the 20% interest, turned to Luna. “At first, I saw the value of my savings skyrocketing, so I bet it all on the Luna. And in the end I lost everything,” she concludes.
Many small investors have experienced the same setbacks. The shock wave of the Luna collapse was such in South Korea that online searches for Mapo Bridge – a bridge in Seoul known to be one of the favorite places to commit suicide – exploded, points out the Financial Times. The police had even increased patrols around this place at the beginning of the summer of 2022.
Not to mention that this debacle was the straw that broke the camel’s back for the entire cryptocurrency ecosystem. “Terra’s disruptions accelerated the fall in prices”, affirmed to France 24 in May Nathalie Janson. A total of $40 billion has been wiped off the face of the cryptocurrency world as a result of this scandal.”
This did not deter Do Kwon. Shortly after this resounding failure, he returned to the charge to propose the creation of Luna 2 during the summer. Provided that investors lend him money again. But this time, the lunatics didn’t follow… like what the gurus don’t always have the last word.