Understanding, kind and even humble: the Do Kwon which was addressed on May 13 to his nearly one million followers on Twitter, and to the millions of holders of his terra and luna cryptocurrencies who were devastated and anxiously awaiting urgent solutions from him, was nothing like the arrogant and rude Do Kwon to whom they had given their trust and their savings, walking behind his shadow to the bottom of the abyss.
They called him the “Korean Elon Musk”. “I don’t argue with poor people on Twitter” and “Are you still poor?” are two of his famous tweets. And another couple of his statements are now read as dire prophecies that he now has to repent of.
“95 percent of the cryptocurrencies is going to fail, but watching companies die is also entertaining” is one, and it resonates, but not as much as his response to the warning about what could happen to his project, and it finally did: “Billionaires who follow me, go for it ( against Terra and Luna) and let’s see what happens”, wrote the young millionaire on November 28, 2021.
Another one bites the dust, Queen would sing. In the aforementioned most recent thread, Kwon claimed to be “heartbroken by the pain that my invention brought to all of you”, said that he would present a new –second– rescue plan for the “Lunatics” community to which “from no way would I abandon”, and also accepted that “we will have to swallow a little pride”.
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His rise to crypto heaven came in just a few short years. With Kwon Do-Hyung as his real name, he graduated with a degree in computer science in 2015, worked at Apple and Microsoft and, in January 2018, founded the company Terraform Labs and created the Terra blockchain platform, on which it built two sister cryptocurrencies, Terra and Luna. The second could be one of the thousands that proliferated after Bitcoin, but it had a special function: to stabilize Terra.
For highly volatile cryptocurrency trading to work, you need coins that you can get out of. For example, one could buy bitcoin with dollars and, whether he wins or loses, sell it to have dollars again and not be exposed to the uncontrollable rise and fall of the price. But that is expensive and, in addition, in the United States and other countries it generates taxes. If the fundamental purpose of crypto is to lower the cost of transactions, removing governments and banks from the operation, and taking advantage of the direct digital connection between people (through the different blockchain platforms), the logical thing was to create “ stable coins” or stablecoins, with a fixed value (attached to the dollar) that avoids volatility.
But how to achieve stability? Controllers of early stablecoins (such as Tether, USDC, and Binance USD) say that they are all backed by non-digital assets, such as dollars, so if all stablecoin holders want to trade them, they can do so at a 1×1 rate. Or so they make believe.
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So, are cryptocurrencies independent of governments and banks or not? Because in the end they are subject to the dollar. This is where Do Kwon stepped in: he created the first algorithmic stablecoin, terra, with luna as the backing cryptocurrency, through an algorithm that had to ensure stability because if terra fell below the dollar, as many moons as needed would automatically be minted. to raise its value, and if it went too high, the moons would “burn” (destroy) until equilibrium was achieved.
As complicated as it sounds, the value of the moon rose from less than a dollar to 119 last April. And the prestige of his creator grew as much or more than that, magnified, moreover, because the world of crypto suffers from a strange void, from a dominant figure: Satoshi Nakamoto, the Japanese inventor of bitcoin, does not exist. Some people claim to be him, but nobody really knows who he is, and the millions of developers, investors and crypto-engineering geniuses have been waiting for a father for years.
Standing on a total market capitalization of $60 billion and 40 million users that his project reached in just three years, at 30, Kwon seemed to be filling that space. And, like Cronus, he is now accused of devouring his children.
Weaknesses existed. In the aforementioned tweet discussion of November 2021, freddie raynolds, a crypto specialist, warned that the system was vulnerable to an attack like the one financier George Soros launched against the Bank of England in 1992, with massive and sudden purchases and sales of British pounds to force a devaluation and make hundreds of millions. with that. Kwon responded by boasting, “Come on in!” And this May 10, Raynolds summed up the debacle in a tweet: “The billionaires did jump.”
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They used the same method: an abrupt sale of two billion terras blew up the algorithm and caused investors to panic, who joined the sale. Kwon had no dollars as a reserve, but the equivalent of more than 3 billion dollars in bitcoins and other cryptocurrencies, which he claims to have sold to defend Terra. Regardless, the stablecoin fell from being worth $1 to 12 cents. Luna fared much worse: it was devalued 99 percent, then 99 percent more, and what was left, another 99 percent, of an exchange rate of 80 per dollar to a moon for 0.00002 dollars.
Millions lost life savings. The Binance exchange, for example, had $1.6 billion worth of Luna, now worth $2,500.
Furthermore, the cryptocurrency market, as a whole, was on the verge of complete collapse. Bitcoin fell 30 percent. More serious was that Tether, the largest stablecoin, began to lose its stability as well (although it managed to recover it). Scared investors pulled $400 billion out of crypto. They called it a “bloodbath.” “This is one of the most painful weeks in crypto history,” he tweeted. Jake Chervinskiof the Blockchain Association, “a week that we will have to face for a long time”.
And Do Kwon? He was left promising eternal love to his followers, who, however, demand different practical solutions than the ones he proposes. After the failure of a first rescue plan, on May 18, in a process that will last seven days, the participants of the terra project began to vote on a second proposal presented by their supreme leader, in which the terra stablecoin disappears and divides the blockchain in two, luna classic and luna, each with its own cryptocurrency. Although a preliminary poll among small Luna holders put forward a 93 percent rejection, Kwon’s effort to convince the “whales” — large corporate Luna holders — could tip the scales in his favor.
Some key figures – such as Binance chairman Changpeng Zhao – have expressed doubts that 3 billion dollars of reserves in bitcoins have actually been spent defending the coins, implying that they ended up in other pockets. Since, unlike the Soros operation of 1992, which gave that financier enormous prestige despite the millions of people he affected, now there is no one who comes out to claim credit with the proud cynicism of a capitalist predator, there is no lack of those who wonder if Kwon himself is not in some way an accomplice in the conspiracy that caused the earth and the moon to go out of orbit.
Not only do they suspect mishandling of the aborted crypto wunderkind. The Financial Supervision Service of your country, South Korea, opened an investigation of anomalies, the ruling People’s Power Party will call Kwon to the Korean parliament to explain alleged irregularities and the Treasury demands 78 million dollars in corporate taxes for the liquidation of its offices in Seoul and Busan (a movement, moreover, suspicious because he did just five days before the disaster).
Only a truly spectacular move that saves his project would allow Kwon to retain his title of “Korean Elon Musk.” For now, he could end up in jail and it is even in doubt that he can continue calling his interlocutors “poor”. Or not, if he somehow hides he is a beneficiary of the Earthquake collapse.