As the dust settles after the dramatic collapse of TerraUSD (UST) and Luna coins, the crypto community is seeking answers about how tens of billions were wiped out overnight in the crash. Do Kwon, the founder of the failed project, stands at the center of the drama.
Yet as the media attention falls on Kwon, several controversies are coming to light. Chief among them is the revelation that UST was not Kwon’s first but second failed stablecoin project. Adding to the intrigue is a string of public comments made by Kwon that seemed to foreshadow the cryptocurrency’s dramatic end. There is also the slippery issue regarding his legal status.
Kwon, a South Korean national, has alleged the Securities and Exchange Commission (SEC) has no jurisdiction over him or his companies, which are registered in Singapore.
The news stories throw Kwon’s public persona into sharp relief. The founder seems to embody the reckless bravado and hubris that characterized crypto’s most recent bull run. What will become of Kwon and others like him as the crypto winter sets in remains to be seen.
Second Time Unlucky
This is not the first time Kwon has run an “algorithmic stablecoin” into the ground.
On May 11, CoinDesk revealed Kwon was the real identity of one of the anonymous co-founders of the Basis Cash (BAC). Like UST, BAC was supposed to keep parity with the greenback but plummeted to fractions of a penny shortly after it launched in December 2020.
One of his former colleagues told Coindesk Kwon operated under the pseudonym “Rick Sanchez” and viewed BAC as his “pilot project” for UST – a test flight that similarly crashed and burned.
Despite his own poor projects’ obvious vulnerabilities, Kwon routinely lambasted investors who put money into alternative stablecoins. Claiming UST to be the oldest and most widely used stablecoin, he told investors to “Bow before the king” in one Tweet.
Kwon’s tough-talking, hard-charging ways typified his online presence. Yet, in quieter moments of one-on-one interviews, Kwon let slip several uncannily prescient comments, raising questions as to whether he foresaw UST’s crash was coming right around the corner.
Did Do Know?
One instance is Kwon’s conversation with chess Youtuber Alexandra Botez (who prematurely hailed him as the ‘Steve Jobs of Crypto’). Less than a week before his currency meltdown, Kwon told Botez in an interview that “95% of them (crypto startups) are going to die.”
The founder chuckled as he added: “But there’s also entertainment in watching companies die.”
In another interview that appeared, Kwon predicts Terra will ultimately disappear.
“It’s a cycle of life, to begin from nothing and go back to nothing; that’s exactly where I want to be,” he told one interviewer. “So I think Terra is going to be a decentralized money standard across the entire blockchain, across all the blockchains… but eventually, go back to nothing. It’s exciting.”
Kwon was known for lambasting his critics or anyone who warned him about the structural weaknesses within his project.
One of the most prominent examples was when seasoned economist Frances Coppola predicted Terra’s collapse if there was a sudden ‘run on the bank’ scenario. Kwon tried to shut down Coppola’s critique by calling her “poor” – an adjective often used by Kwon in an attempt to insult people on Twitter.
“I don’t debate the poor on Twitter, and sorry, I don’t have any change on me for her at the moment,” he replied to her.
Despite the value of Kwon’s currency being tied directly to the stability of the U.S. dollar, Kwon often showed scant regard for U.S. law.
“It’s fascinating when talking to Americans that they’re sort of obsessed with American policy and American regulators and things like that,” he told Coindesk. “It’s quite possible that in other parts of the world, they have other priorities and other things to pay attention to.”
Perhaps unfortunately for Kwon, the feeling was not mutual. American regulators were undoubtedly interested in him.
Between Legal Worlds
The international dimensions of Kwon’s project make it unclear whether he will be held accountable by courts in South Korea, Singapore, the U.S., or (potentially) all three.
Kwon and his lawyers remain adamant that the U.S. has no jurisdiction over him since his company is not registered there, nor is he a U.S. citizen or resident. The SEC has issued Kwon with a subpoena, though, and an ongoing lawsuit between Kwon and the financial watchdog is yet to determine to what extent American law applies to the project.
Meanwhile, in South Korea, authorities have launched an “emergency investigation” into UST’s crash and charged Kwon with a $78.5 million fine for tax evasion.
Although Singapore has yet to launch an investigation into Kwon, industry insiders believe authorities will likely make a move soon.
“From a Singaporean perspective, if you are a retail investor and you feel that you have been a victim of fraud and have lost a certain amount of dollars on paper even though you held your investment and did not sell … that is a possible lawsuit Singaporeans can pursue or the government can pursue,” Anndy Lian, Singaporean crypto thought leader, told Al Jazeera.
With potentially multiple legal battles to come, Kwon is not likely to fade from the headlines anytime soon. Though the catastrophic wealth-destroying crash is over, there could yet be some more twists and turns in this messy crypto saga.
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This post was produced and syndicated by Wealth of Geeks.
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Liam Gibson is a journalist based in Taiwan who regularly publishes in Al Jazeera, Nikkei Asia Review, Straits Times, and other international outlets. He also runs Policy People, a podcast and online content platform for think tank experts.