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The 30-year-old engineer behind the disaster of the cryptocurrency market

Do Kwon, behind the Luna and UST cryptocurrency disasters, used to be an Apple and Microsoft engineer, but he chose to go the blockchain route.

On May 11, Kwon’s tweet with content to reassure the community attracted 34,000 likes and more than 10 thousand shares, dozens of times higher than previous posts. His Twitter account also has a following that has doubled to more than 600,000. The name Do Kwon appeared flooded on news sites and groups about cryptocurrency.

However, Kwon is not a social media star. The UK became the focus after the biggest collapse of the crypto world since the “crypto winter” of 2018. This market returned to a market capitalization of $ 1.1 trillion, the lowest in a year. The cause stems from a product made by Kwon – the UST coin.

Do Kwon, born in 1992 in South Korea, is the founder of Terraform Labs, the organization behind the stablecoin UST, the Terra cryptocurrency, and the Luna Foundation Guard. The instability of the UST price and Kwon’s failed rescue attempt sparked a huge sell-off campaign in the cryptocurrency market, creating a domino effect that made the entire market “red on fire”, bringing the capitalization of the cryptocurrency market to a standstill. The market returns to 2021 and shows no sign of stopping.

Do Kwon.  Photo: Bloomberg

Do Kwon. Image: Bloomberg

From an engineer who wants to change the blockchain world…

In 2021, Kwon is among the 10 most influential people in the crypto industry, along with Nguyen Thanh Trung by Sky Mavis. In an article about Kwon at the time, CoinDesk described him as “smart, nerd, wanting to do things that bring real value”.

Kwon graduated with a degree in Computer Science from Stanford University. He used to work as an engineer at Apple and Microsoft. However, the two technology giants could not keep the 9x engineer for more than three months because the job was described as “boring”.

Kwon’s first startup project in 2016 was Anyfi – a distributed network solution that helps everyone connect to the Internet. He quickly succeeded with this idea, receiving a million USD in funding from angel investors and the Korean government.

His research into distributed technology brought him to blockchain. Blockchain technology works somewhat similar to the idea of ​​Anyfi. A year later, seeing the cryptocurrency market explode with no real value in use, Kwon decided to join with the desire to create more positive changes.

At an apartment rented on Airbnb in 2018, Kwon and his college friend Nicholas Platias wrote the first lines of a decentralized payment system, with the idea that it could be used by the average person. That was the beginning of Terraform Labs. The word “Terra” is inspired by the character Terran in the game StarCraft that Kwon loves. The character is described as “excellent in adapting to any situation”.

Initially, Terraform Labs’ solution was used in the Chai e-commerce platform, built by Daniel Shin – also co-founder of Terraform. Chai was a huge success, attracting 2.5 million users and helping the project receive tens of millions of dollars in investment from many large funds. But that did not help Kwon satisfy his original desire. “I want to expand the reach even further, not just focusing on a single product, but an overall economy with more than one company,” Kwon told me. CoinDesk.

This ambition motivates young engineers to focus on building UST (TerraUSD) – a digital currency parity with USD, built on technology platform with Terra’s ecosystem. “It offers a better experience, which other currencies are lacking,” Kwon said.

… to the suspected scheme of fraud

Unlike stablecoins like USDT, USDC which are backed by real money, Kwon’s UST is called an “algorithmic stablecoin”, using the Luna token itself to keep the balance. One UST is born by burning one USD worth of Luna tokens.

Kwon is confident in his ways, because he thinks they “liberate humanity from financial regulation and censorship”, or the risk of being shut down by regulators – risks that USDT knows about. USDC may encounter.

To promote UST, Kwon develops a digital ecosystem using Terra blockchain, with similar applications in the traditional financial market. For example, their Anchor platform acts like a bank, allowing users to deposit money and receive interest, with interest rates close to 20%, many times higher than banks. Or the Mirror platform helps to create digital assets based on real assets, to help transact in the digital environment anytime, anywhere. However, Mirror got Kwon whistled by the US Securities and Exchange Commission (SEC) for putting shares on the platform without registration, while Anchor was also suspected of being a Ponzi scheme because Incredibly high interest rates.

Despite those controversies, Terra has become one of the most anticipated projects in the crypto world. In early January 2021, Terraform Labs received a $25 million investment from Mike Novogratz’s Galaxy Digital fund. This billionaire even tattooed the word Luna on his arm to show his support for Kwon. Two months later, Anchor’s launch helped the founder receive another $150 million in investments from Pantera Capital and BlockTower Capital. Token Luna peaked at 119 USD in April and Terra’s digital currency is also in the top of the most valuable cryptocurrencies on the planet.

As a founder, Kwon reacted harshly to criticism of his project. He once called protesters “cockroaches”, or “idiots”. After receiving a subpoena from the SEC during a blockchain event in 2021, Kwon even sued the SEC for violating the rules. When some Twitter accounts predicted that the price of Luna token would plummet, Kwon spent 11 million USD to make a bet with them because he believed the coin would be worth over 88 USD by March 2023.

Failure is predictable

Prior to UST, many algorithmic stablecoins such as Neutrino, Iron, and Basis all failed when their value was not pegged to the price of USD. Former employees at Terra reveal that Basis is actually an experimental project of Kwon, developed by him under a pseudonym.

Reply Bloomberg In April, Kwon said that UST would only be in such a situation if the number of DeFi projects on its blockchain exploded, meaning they could only be “victims of their own success.” Kwon believes in that vision and has built the Luna Foundation Guard (LFG), an organization whose role is to raise capital to stabilize the price of UST in times of volatility. In January, LFG raised $4.1 billion and is expected to grow to $10 billion this year.

However, Kwon’s early success did not reduce the doubts of experts. Galois Capital, a crypto hedge fund, makes a “storm of posts” on Twitter every day criticizing Terra. The Galois execs assert that the supply-demand mechanism built on the relationship between Luna and UST will fail and fail to keep UST worth a dollar, and the Anchor platform provides an annual return of nearly 20 % will eventually consume all of the project’s reserves.

“Simply put, more money going out than coming in. Every day, Anchor’s reserves will flow out several million and it’s like the doomsday clock is counting down,” Galois’ account wrote on April 7.

A month later, that scenario actually happened to Kwon and Terra. On May 7, 85 million UST was liquidated by one user, making the price of this coin unstable. Even though it’s only 2% down from the one-dollar mark, this is a relatively large number for a coin that should have stabilized. Terraform Labs implements remedies such as burning Luna, liquidating Bitcoins in the reserve fund. However, adding billions of dollars worth of Bitcoin to the market on May 10 caused the price of this coin to decrease, combined with a series of other objective reasons, pulling the entire market down.

“I understand that the past 72 hours have been a very difficult time for all of you. Please understand, I will join each and every one of you in our determination to get through this crisis on our own terms,” ​​Kwon wrote on 11/. 5, when the value of UST is only half.

The Luna token almost lost all of its value in just a few days.  Photo: CMC

The Luna token almost lost all of its value in just a few days. Image: CMC

However, all of Kwon’s efforts were unsuccessful. By May 13, the price of UST was 0.17 USD, while Luna’s lost almost 100% of its value. Terra blockchain announced to suspend operations.

Do Kwon is now likened to Elizabeth Holmes – the founder of the blood testing company Theranos. Holmes was once considered a technology icon when he announced a fast, cheap test solution when he was only 19 years old. She became the richest self-made billionaire in the US before being discovered to be a fraud. According to editor David Z Morris of CoinDesk, Kwon will likely also face lawsuits in the future. And the professional investors who supported Do Kwon, it’s time to take a look at yourself.

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