- Cecilia Barria
- BBC News World
That’s $40,000 million that disappeared overnight.
This is the amount lost by those who invested in two cryptocurrencies whose value crashed on May 13: luna and terra (also known as UST), both created by tech entrepreneur sud 30-year-old Korean Do Kwon.
His story is like that of many child prodigies who arrive in Silicon Valley with the idea of creating the next big innovation that will revolutionize the market.
Kwon considered computer science at the prestigious Stanford University, USA, and worked as a software engineer at Microsoft and Apple, until he founded Anyfi, a tech company dedicated to developing connectivity alternatives.
But the creation that made it known around the world came in 2018 with Terraform Labs, a software developer headquartered in Singapore.
Do Kwon founded it with Daniel Shin, with the aim of building payment systems based on blockchain technology.
At that time, the entrepreneur claimed that he was creating a “modern financial system” that users could use without having to use banks or any other type of intermediary.
This is how he entered the world of cryptocurrencies, gaining support from big companies like Binance, who believed in the potential of their cryptocurrencies.
Forbes considered him one of the big successful young professionals in the tech world and before long it seemed like the entrepreneur had the world at his feet.
Without any humility, Do Kwon called his lunar cryptocurrency “my greatest invention” and proclaimed to the four winds the qualities of digital currency to “change the world”.
He even posted on his Twitter account (@stablekwon) that he named his daughter Luna “The name of my most beautiful creation inspired by my greatest invention”.
Madmen and the cult of personality
He quickly gained the trust of a select group of investors who were proudly referred to as “crazy people” (from the name of the coin).
Kwon’s company has raised hundreds of millions of dollars from major venture capital firms to fund its projects.
In a short time, he gains the trust of the markets and convinces many “heavyweights” of his risky trading bet based on algorithms created in his own laboratory.
Unlike bitcoin, whose creator(s) are unknown, “Kwon coins” – as they are called in the cryptocurrency environment – are directly linked to a person.
Among the followers is Mike Novogratz, CEO of Galaxy Digital, who announced his support by getting a Luna tattoo “I’ve become a lunatic”.
The confidence of some big investors in the entrepreneur has reached such a level that the presenter of the “Mission: DeFi” podcast declared that there was a “cult of personality”.
Why Luna and Terra are “twin” currencies
Do Kwon launched the luna cryptocurrency in the market in 2018 and two years later created terra (UST), a digital currency that belongs to the category of “stablecoin” or stable currencies.
Unlike other cryptocurrencies, those that are “stable” are given this name because they are tied to a less volatile asset, such as the dollar.
It is a very different type of currency than digital currencies such as bitcoin or ether, to name a few.
The luna-terra duo has its own mathematical formula created at Terra Labs, in which the value of one depends on the other and that is why they are known as “twin currencies”.
Terra, on the other hand, is an “algorithmic stablecoin” that, through complex calculations, had to always maintain a value of 1 USD. No more, no less.
Everything seemed to be working fine, until critics started to mount, warning that Kwon’s creation – seen by some as the work of genius and by others as a Ponzi scheme – might fall apart at any time.
The market lost faith in Kwon’s algorithmic formula amid falling cryptocurrency prices and bad economic news.
Luna lost all its value (it fell from $118 to $0.09) and terra crashed just as fast.
The sharp drop in both designs has encouraged panic among some investors who have embarked on a cryptocurrency sell-off, leading to a general decline in the industry.
“I am heartbroken by the pain my invention has caused everyone,” Kwon tweeted when the scandal broke.
Big investors lost billions of dollars, although after all they knew the risk they were taking, since they have an army of analysts and cryptographers who thoroughly study every investment.
The problem is, as always, for small investors, i.e. people who – without understanding the algorithmic intricacies – trust something that will theoretically make them easy money.
In a Reddit social network forum, some users posted their struggles and even shared suicide prevention phone numbers.
“I felt like I was going to die”
A desperate man has been arrested after visiting Do Kwon’s house following the collapse of the twin rooms.
He told the BBC his life was in tatters.
“I felt like I was going to die,” said the user known as Chancers.
“I lost quite a lot of money in a short time. About $2.4 million of my cryptocurrencies disappeared.”
Others, however, instead of losing money, got rich by withdrawing their investments before the crash.
For example, Martin Baumann, co-founder of CMCC Global, a Hong Kong-based venture capital firm, said his company sold its instruments in March at around $100 apiece, according to The New York Times.
Although it may seem hard to believe, Do Kwon announced a few days ago the relaunch of its moon coin, version 2.0.
But now, the businessman has opted for a low profile and no longer speaks in public.
Perhaps because of the lawsuits that some victims of the collapse of their twin currencies will bring. Perhaps because this time it seeks to rearm with another strategy.
In any case, in the few days of Luna 2.0’s life, the results indicate that this time it will be much more difficult to convince the world of its genius.