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South Korean founder of failed Terra coin admits he was ‘wrong’ – AFR


The co-founder of the failed Terra cryptocurrency, which collapsed in May and wiped out around $40 billion in investor funds, has admitted he was “wrong” but said he did not speak to South Korean investigators.

The dramatic disintegration of stablecoin TerraUSD and its sister token Luna – both of which fell to near zero value – hit the broader crypto market, causing over $500 billion in losses.

Stablecoins are designed to have a relatively stable price and are usually pegged to a real commodity or currency.

Many retail investors lost their savings when Luna and Terra went into a “death spiral” and collapsed, and South Korean authorities have launched multiple criminal investigations into the crash.

In his first public statements since, Do Kwon, the 31-year-old South Korean founder of Terraform Labs, spoke to Singapore-based crypto media startup Coinage and said the collapse was “brutal.”

“I think in terms of healing wounds, the best thing I can do is be open about everything that’s happened. You know, just admit I was wrong,” Kwon said.

South Korean prosecutors last month ransacked the home of Do Kwon co-founder Daniel Shin as part of an investigation into allegations of illegal activities behind the collapse of Terra.

Authorities have also blocked key former and current Terraform Labs employees from leaving the country – and required Kwon to notify them if he returns.

But Kwon said in his interview that he has not been contacted by prosecutors and has not yet decided whether he would return to South Korea to cooperate.

“It’s quite difficult to make this decision because we’ve never had any contact with the investigators,” he said, adding, “They never accused us of anything.”

– ‘Warning Example’ –

Do Kwon and Terra are cautionary tales for the crypto market.

TerraUSD was once the fourth largest stablecoin and the tenth largest cryptocurrency by market value, according to CoinMarketCap.

Unlike other stablecoins that are backed by real-world assets like cash, TerraUSD was algorithmic — it used code to keep its price around $1 based on a complex system of minting and burning.

A TerraUSD token was created by destroying a portion of sister cryptocurrency Luna to maintain the dollar peg.

To keep Terra in demand, Terraform Labs began offering staggering interest rates that many critics ridiculed as a Ponzi scheme.

When TerraUSD crashed, investors panicked and tried to withdraw their funds, causing a vicious, self-perpetuating bank run.

Many experts had predicted this very eventuality, saying the model was fundamentally flawed.

“If demand falls away, the price will go to zero,” Hilary Allen, a professor of financial regulation at American University in the US, told AFP.

“This is a trait of almost all crypto assets and as such Terra/Luna should be viewed as a cautionary tale for all crypto investors.”

– Ponzi scheme –

Before the May crisis, Kwon had two completely different reputations depending on who you asked: he was either a genius mastermind or the mastermind of a Ponzi scheme.

A Stanford graduate from South Korea who had worked at Microsoft and Apple, Kwon has frequently belittled critics online who have expressed doubts about his algorithmic stablecoin model.

When British economist Frances Coppola tweeted that self-correction mechanisms – used by TerraUSD – will fail if investors panic to exit, Kwon tweeted back, “I don’t discuss the poor on Twitter.”

Cory Klippsten, CEO of crypto trading app Swan.com, said the Terra system’s structure “represents an actual Ponzi scheme.”

“I believe that Do Kwon and Terraform Labs committed fraud and should be prosecuted in multiple jurisdictions,” he told AFP.

In the interview in Singapore, Kwon said he still believes in Terra.

Just a few weeks after the coin failed, he launched a new iteration called Terra 2.0, but its value quickly dropped from $11 to $2.

“I will always do things on Terra and for the Terra community,” said Kwon. “This is my home and this is where I feel the brightest future is.”

But with multiple lawsuits and investigations pending, analysts say Kwon’s next projects are unlikely to succeed.

“Do Kwon’s name now basically carries negative goodwill,” said Kelvin Low, a law professor at the National University of Singapore.

“His involvement in a project does him more harm than good.”

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