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Crypto: Terra Creator Admits Mistakes After Stablecoin Collapse

After the collapse of the stablecoin, the creator of Terra admits his mistakes. This will cause investors to lose $40 billion and more than $500 billion in the cryptocurrency market. Do Kwon, 31, the co-founder of TerraUSD, admitted he had “made a mistake” after the “brutal” collapse of his stablecoin. “I think the best way to heal the wounds is just to be honest and admit that I was wrong,” the young South Korean told the media for the first time since the Terra crash. Coinage specialist from Singapore.

It all started well, though. In 2018, this Stanford graduate, who worked for Apple and Microsoft, launched his cryptocurrency with one idea: to use blockchain technology to develop a more efficient payment system. To do this, it wants to base itself on a so-called stable cryptocurrency, the price of which is in principle linked to traditional currency, which guarantees investors a certain durability in the very unstable world of cryptocurrencies.

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And the beginnings are promising. Do Kwon manages to raise almost $40 billion from renowned investors such as Polychain Capital or Arrington XRP. In April 2022, the value of terra reaches its highest value. According to CoinMarketCap, it is the fourth largest stablecoin and the tenth largest cryptocurrency by market value. But things are about to go downhill. A month later, Terra lost more than half of its value in 24 hours, spreading panic in an already feverish crypto-asset market.

A “Ponzi scheme,” according to her detractors

Very quickly, the stablecoin and its sister token Luna fall to zero, leading to losses of more than $500 billion in the market. The stability of some so-called stable cryptocurrencies is not ensured by foreign exchange reserves, but by an algorithm that performs arbitrage based on the supply and demand of another cryptocurrency.

This is the case of Terra, which is backed by a cryptoasset developed by Luna Foundation Guard. However, this token also failed. The domino effect is immediate: investors panic and try to withdraw their money. Critics have long warned against this system, which they considered structurally flawed. In fact, every time a terra token was created, a portion of the Luna cryptocurrency had to be destroyed in order to maintain support for the dollar.


The Surprising Positive Effect of the Crypto Market Collapse

And to keep up with demand, Do Kwon’s company, Terraform Labs, offered high interest rates. Ponzi scheme, condemn the detractors. “If demand falls, then the price will fall to zero,” said Hilary Allen, a professor of financial regulation at American University based in the United States.

As a result, many small investors lose all their savings. “This is a feature of almost all cryptoassets, so Terra/Luna should serve as a warning to all cryptoasset investors (entering the market),” notes Hilary Allen. South Korean authorities have since launched several criminal investigations into the case. Last month, South Korean prosecutors raided the home of co-founder Daniel Shin on suspicion of illegal activities behind the collapse of Terra.

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Investigations ongoing

Authorities also banned key former and current employees of Terraform Labs from leaving the country and asked Do Kwon to notify them of their return. But in an interview with Coinage, the entrepreneur said that prosecutors have not contacted him and that he has not decided whether he will return to South Korea to cooperate. “It’s a little difficult to make this decision, because we’ve never been in contact with the investigators,” he said, adding: “We’ve never been accused of anything.”


Will cryptocurrencies finally experience a strong recovery?

A few weeks after the collapse of Terra, he launched Terra 2.0, which nevertheless suffered the same fate as its predecessor: its value quickly dropped from $11 to $2. Despite his mea culpa, Do Kwon says he still believes in his cryptocurrency: “I will always do things around Terra and for the Terra community,” Kwon continues. “It’s my home and it’s where I feel the brightest future lies.”

But with multiple ongoing investigations, analysts say Do Kwon’s plans for the future are unlikely to come to fruition. His name “now carries + negative goodwill +”, analyzes Kelvin Low, professor of law at the National University of Singapore. “His involvement in the project is hurting him more than helping him.”


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