Crypto: Terra Creator Admits Mistakes After Stablecoin Collapse

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

It all started well anyway. In 2018, this Stanford graduate, who worked for Apple and Microsoft, launched his cryptocurrency with one idea in mind: to use blockchain technology to develop a more efficient payment system. He wants to base this on a so-called stable cryptocurrency, the price of which is in principle linked to that of a traditional currency, which guarantees investors a certain sustainability in the highly volatile world of cryptocurrencies.

And the beginning is promising. Do Kwon manages to raise nearly $40 billion from renowned investors such as Polychain Capital or Arrington XRP. The value of terra will reach its highest point in April 2022. According to CoinMarketCap, it is the fourth largest stablecoin and the tenth largest cryptocurrency by market value. But it’s starting to go downhill. A month later, terra lost more than half of its value in 24 hours, sparking panic in an already feverish crypto asset market.

– “Zero” –

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

This is the case with terra, which is backed by the cryptoasset developed by the Luna Foundation Guard. However, this token has also collapsed. The knock-on effect is immediate: investors panic and try to withdraw their money. Critics had long warned against this system that they viewed as structurally flawed. Every time a terra token was created, part of the Luna cryptocurrency had to be destroyed in order to maintain support for the dollar.

And to keep up with demand, Do Kwon’s company Terraform Labs offered high interest rates. Ponzi scheme, sue the opponents. “If demand slumps, the price will drop 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. “It is a feature of almost all cryptoassets, so Terra/Luna should serve as a warning to all investors (entering the market of) cryptoassets,” notes Hilary Allen. South Korean authorities have since opened 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 terra’s collapse.

– Ongoing investigations –

Authorities also banned key former and current Terraform Labs employees from leaving the country and asked Do Kwon to notify them of his return. But in his interview with Coinage, the entrepreneur said he had not been approached by prosecutors and had not decided whether to return to South Korea to cooperate. “It’s a little hard to make this decision because we’ve never been in contact with the investigators,” he said, adding, “They’ve never accused us of anything.”

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A few weeks after Terra’s collapse, he launched Terra 2.0 which nevertheless met the same fate as its predecessor: its value dropped very quickly 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 investigations underway, analysts say Do Kwon’s plans for the future are unlikely to materialize. His name “now carries a + negative goodwill +,” analyzes Kelvin Low, a law professor at the National University of Singapore. “His involvement in a project hurts him rather than helps him.”

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