Kwon, 31, left Stanford University in 2015 and earned a degree in computer science, according to his LinkedIn profile. He had stints at Apple Inc. and Microsoft Corp. By, as he put it, “into a coded rabbit hole.” Kwon co-founded Terraform Labs in 2018, and is one of many young programmers who saw blockchain technology as a gateway to the financial revolution. His project to create a stable digital currency outside of mainstream finance and regulators has attracted a large crowd of followers as well as critics who say it is a doomed Ponzi scheme. Sometimes rowdy and combative, Kwon took on opponents online, telling one critic that the Luna community wasn’t “as poor as your broken ass.” In May, when his project collapsed, he said he was “sad because of the pain my invention has brought you all”. He has mocked people who see him on the run, saying he hasn’t run in a while and needs to “cut some calories.”
2. What happened to the TerraUSD stablecoin?
Algorithmic stablecoin TerraUSD and its sister token Luna collapsed in May 2022 after value swelled during the pandemic-era crypto boom. TerraUSD was not backed by dollars or other assets, but instead was supposed to be worth $1 because it could be exchanged for $1 from Luna, which in turn was supposed to increase in value as the Terraform Labs network increased in value. TerraUSD’s popularity grew when Kwon launched the Anchor Protocol, which offered a staggering 20% interest rate on TerraUSD deposits. But the whole edifice collapsed when investor confidence vanished amid a sell-off in virtual currencies. On May 7, speculation grew that the TerraUSD peg was in jeopardy when its price dropped to 99 US cents. Terraform Labs significantly increased the supply of Luna to restore the link, causing the price of the latter to drop. (It was once worth more than $100.) A few billion dollars worth of Bitcoin reserves failed to stop the death spiral: Within days, TerraUSD and Luna were practically worthless.
3. How did he end up on the run?
TerraUSD’s internal meltdown has rocked digital tokens globally, exacerbating a $2 trillion survey of cryptocurrency market capitalization from the November 2021 peak. This has inevitably drawn scrutiny from regulators from the US to Asia, as well as law enforcement in South Korea. , where about 280,000 people bought Luna. Lawyers for Luna investors have filed complaints with South Korean prosecutors alleging that Kwon has engaged in fraud and illegal fundraising. On September 14, prosecutors said the court had issued an arrest warrant for Kwon and five others on charges including violating the Capital Markets Act. Kuhn was thought to be in Singapore, but the city-state on September 17 said he was no longer there. Prosecutors said on September 26 that Interpol had issued a Red Notice – a request to police around the world to locate and arrest Kwon. He is due to be stripped of his South Korean passport in the coming days.
4. What is Kwon’s defense?
As September drew to a close, Kwon’s Terraform Labs dismissed the South Korean accusations, saying the case against him had become “highly politicized.” A company spokesperson said in a statement that the plaintiffs had acted unfairly and that there was no reasonable basis to charge Kwon with violating the country’s capital markets law because Luna does not qualify as a security under this title. Whether or not Luna is subject to securities law is a major issue in the case and echoes a broader question that officials are asking around the world about the state of digital tokens. The company denied Conn was a fugitive and said he had been in contact through attorneys with agencies that asked to speak with him.
5. What are the broader implications for cryptocurrencies?
The fallout from Terra is likely to foreshadow stablecoin regulations in an effort to better protect buyers. Investors are also more wary of decentralized finance, or DeFi, which refers to the practice of trading tokens and borrowing and lending on digital ledgers such as those created by Kwon. In the United States, the House of Representatives has drafted legislation to ban algorithmic stablecoins such as TerraUSD for two years. In South Korea, the nation’s enthusiasm for digital assets is being replaced by contempt. More broadly, losses from Terra have put more pressure on crypto investors to better assess risks. Billionaire Mike Novogratz, whose work at Galaxy Digital has backed Terraform Labs, described TerraUSD as a “big idea that failed” and an educational moment about risk management in crypto.
More stories like this are available at bloomberg.com
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