In a field known for controversial figures backing questionable projects, few if any individuals are quite as shadowy as Do Kwon, the founder of Terraform Labs and its cryptocurrencies TerraUSD (UST) and Luna, which in mid-May each collapsed to nearly $0 and wiped out $60 billion of investors’ money in hardly more than the blink of an eye.
Kwon is either seen as a complete “psychopath”—or a genuinely “good” person. Outsiders see Kwon as a “trash-talker” who created a “Ponzi scheme” and delights in calling his critics “poor,” while his inner circle says he’s a misunderstood “genius.” (Kwon has defended himself on Twitter, denying many of the claims—including accusations of a Ponzi—while declining to comment to the media, including Fortune.)
Ronald AngSiy, vice president at decentralized finance (DeFi) company Intellabridge Technology, tells Fortune that he lost over $1 million investing in UST and Luna. But how does he view Kwon now? “A brilliant person and a great human being,” he says.
Yet UST isn’t Kwon’s first foray into crypto projects that ended badly. Kwon, who is 30, from South Korea, and is currently based in Singapore, had an eerily similar early debacle with a project quite similar to UST, an algorithmic stablecoin called Basis Cash, which failed and became worthless in 2020. Because that project was launched under a pseudonym, he was able to distance himself from it, and following that disaster, he launched UST that same year. It soared as crypto hit the mainstream; by early 2022, both UST and Luna reached a combined valuation of $60 billion at their peak. Alongside the cryptocurrencies, Kwon successfully persuaded a cadre of long-established crypto investors such as Galaxy Digital, Pantera Capital, and Polychain Capital to invest some $200 million in Terraform Labs in total.
But in early May, the Terra ecosystem crashed, tanking UST and Luna to less than $1. Over the week of May 9 alone, holders of Luna and UST collectively lost around $42 billion, according to blockchain analytics firm Elliptic. Many investors hurt by Terra’s demise are now looking for answers. They’re asking what Kwon knew (and when) about the stability of UST—and regulators are circling as well.
Rather than slink away, however, Kwon is brazenly launching Act 3: Just two weeks after the crash, he proposed a plan to save his company and start over by creating a new blockchain, which was voted into place by Terra validators and community members on May 25. The new chain launched on May 28, with the new Luna token airdropped to investors. Kwon claims that this is the only way to help those battered by Terra’s collapse, but critics see the start of a new scheme with the same old problems. Still, the most powerful validators and investors with more voting power backed his plan to start again, and massive exchanges like Binance and FTX followed suit, listing the new Luna token on their platforms. Upon its launch, the price of new Luna sank, then it spiked ahead of its Binance listing, and fell again. Some everyday investors, meanwhile, want to actually burn their remaining old Luna tokens, permanently destroying it.
Still, Korean authorities said they were investigating Terraform Labs. For its part, a Terraform Labs spokesperson said in a statement that: “We worked hard to put in place measures we believed would maintain and protect the future of Terra, a future we believed in from the beginning. We were clear about the risks involved in TerraUSD (UST). We were clear about the risks involved in the Anchor Protocol. We included a “Protect Your Deposit” link on the Anchor website, which linked to available insurance products, including for the risk that UST might break from its peg. As with virtually everything else in life, each individual must decide for themselves what risks they are willing to undertake. We can’t speak to any third-party statements made about UST or the Anchor Protocol.”
Whatever Kwon is, and however his latest plan plays out, two things are certain: He has a talent for winning people’s trust, and every DeFi project he’s launched in his nearly decade-long career has ultimately failed.
Anatomy of a scandal
Kwon was born in South Korea in 1991. Several former employees of Terraform Labs tell Fortune that Kwon attended an “elite foreign language high school” there. He told CoinDesk in late 2021 that he grew up “traveling the world” as a “son of a pharmaceutical and medical equipment distributor.” He added that he liked reading “theoretical works” and was a “nerd” as a teenager, but “not nerdy.”
In 2010, Kwon started attending Stanford University and studied computer science. There, he roomed with the “president of the Ayn Rand Society,” Kwon told CoinDesk. According to his LinkedIn, Kwon graduated with a bachelor’s degree in 2015 after five years at Stanford, after which he took a software engineering job at Microsoft, but reportedly “got bored” quickly. (When asked for confirmation, a representative for Microsoft told Fortune “the company has nothing to share.”)
Kwon launched his first company when he was just 24. Called Anyfi, it was a telecommunications network startup. His talent at winning people over was obvious, as were his high-level connections in Korea, as Anyfi won backing from South Korean venture capital firm Lotte Ventures, according to CB Insights, a provider of data and intelligence on venture capital. However, by October 2017, Kwon left the company (it’s unclear whether it still exists). Soon after, Terraform Labs was born.
Kwon partnered with Daniel Shin, a cofounder of Ticket Monster and a “legendary figure in the Korean tech scene” according to CoinDesk, to launch Terraform Labs in January 2018. Their plan was to develop a payments application called Chai and to create a stablecoin for transactions.
At the same time, Kwon and Terraform employees were working on Basis Cash, an algorithmic stablecoin that launched in 2020 without any public tie to Terraform. Kwon led operations of Basis Cash under the pseudonym “DeFi Rick,” a nod to “Rick Sanchez,” the mad scientist character in Rick and Morty, an adult animated show beloved by millennials. Two former Terraform Labs employees confirmed to Fortune that Kwon went by “Rick” in their Basis Cash Telegram group chat and in media interviews.
“I was in conversation with Do Kwon, and he came up with the idea of Basis Cash,” a former Terraform Labs employee told Fortune under the condition of anonymity for privacy reasons. Before launching UST, Kwon wanted to “test out DeFi on Ethereum,” the former employee said, as it was summer of 2020, a time referred to by the cryptocurrency community as “DeFi Summer.”
Basis Cash was seen as a fun experiment for the Terraform Labs team, the former employee said, with its builders promising a “fair launch” with “no rugs,” or rug-pull schemes, a type of crypto scam in which a team behind a project hypes its product before ultimately disappearing with its funds. Nonetheless, Basis Cash quickly flared out, failing to retain its $1 peg upon its launch due to its weak code and algorithmic setup.
The test run was a total failure, losing $54.5 million in value.
But because Kwon had worked under the pseudonym (“DeFi Rick”), he was able to sweep that failure under the rug; few people even knew he was the force behind the failed venture. So just a few months later he was back—with an even bigger experiment based on the same infrastructure. It was called UST.
As an algorithmic stablecoin, UST holds value based on an algorithm that is coded to strike a balance between the stablecoin and its partner coin, Luna. Every time a UST token is minted, the equivalent of $1 in Luna is “burned,” or removed from circulation, and vice versa, to maintain the peg. To incentivize the longevity of this setup, a Terra-based decentralized finance (DeFi) protocol called Anchor promised users a 20% return if they deposited their UST into its application.
Former Terraform Labs employees told Fortune that they didn’t think Kwon knew the ecosystem would fail like Basis Cash did, but years ago, some crypto analysts posted public warnings on social media of the possibility of a future “death spiral” based on the setup of the Terra ecosystem. In this case, analysts pointed out that if UST fell, it would depend on Luna to save it. But if investors panicked, and Luna also fell, then UST would continue to crash, leading to the demise of both.
Kwon didn’t listen to any criticisms online, often refuting any concerns brought forward with the same reply: calling his critics “poor.”
“I don’t debate the poor on Twitter,” Kwon tweeted in 2021, “and sorry I don’t have any change on me for her at the moment.”
When asked about Kwon’s behavior on Twitter, some former Terraform Labs employees say it’s an act, and not representative of who he really is.
“He did seem to be very non-humble in the Twitter space, but when I worked with him, person to person, he’s a very good, generous man. He tried to take care of employees very much,” a former Terraform Labs employee said.
Engineers complained that they were underpaid, according to the former employee. But other than that, Kwon “didn’t sound like his Twitter. He was a good boss. The whole thing that Do [Kwon] tries to act in the Twitter space is just an act. He is not an asshole in real life,” the former employee said, likening Kwon to Bobby Axelrod from the television show Billions (where the hedge fund CEO comes off as equal parts brilliant and ruthless).
“I have no doubt [Kwon is] a psychopath, but he’s also a mastermind genius,” the former employee said. “You can only experience [it] by working with him.”
AngSiy—who is part of Terra’s “Leaders” group chat, is called a “Terra ecosystem company insider” by the cryptocurrency community online, claims to represent Terraform Labs at conferences, and acts as a Terra community manager—said the same of Kwon. Despite his support of the company, AngSiy emphasizes that he is not, and never has been, a Terraform Labs employee, although he acknowledges he earned performance-based compensation for the community leader role.
He said that Kwon “cares deeply about the people around him,” adding that Kwon paid for a Terraform Labs employee’s “first class flight” to travel home “comfortably” and “make sure he was at his son’s baseball game on time” after a work-related trip.
AngSiy added that Kwon will also “roll up his sleeves” to adjust internal “organization” systems he isn’t fond of. He said Kwon has the “ability to dive into the weeds on any problem,” calling it “Elon Musk–eque.”
Former Terraform Labs engineer Hyungsuk Kang says that Kwon reserves good treatment for a select few. “I mean, everyone agrees that he’s a dickhead,” Kang said. Kang adds that he personally felt he wasn’t taken seriously at Terraform Labs because he didn’t have an Ivy League education. “He makes people in his network [feel] kind of special. He rewards people that are loyal to him,” Kang said. But “I did not want to do that, so I only saw the other side of Do [Kwon].”
Kang also said he warned Kwon that the code behind his algorithmic stablecoin was faulty, and has reportedly testified as much to Korean prosecutors. However, another former Terraform Labs employee told Fortune that Kang never warned Kwon.
As time went on, Kwon’s cofounder Shin eventually left Terraform Labs. He claimed to have left to focus on Chai payments, splitting apart to keep distance from Terra for regulatory purposes. But what truly happened is murky. For example, it was reported by CoinDesk Korea in 2020 that Chai users were “unwittingly connected to Terra,” adding that “the balance that Chai customers have charged with Chai money, but not yet used, [was] tied to the Terra platform.”
But Kwon remained at the helm and continued to raise funds from top VC firms, including Pantera Capital, Arrington Capital, and Hashed. Kwon bragged about landing investments from the three firms in particular “without even a pitch.” (Pantera Capital declined to comment. Arrington Capital and Hashed did not respond to requests for comment.)
According to CB Insights, Terraform Labs also landed investment from Binance Labs, Coinbase Ventures, and Galaxy Digital, among others. The “decentralized payment system” became more seemingly centralized—literally controlled by a few entities. But Kwon had a ton of support—Galaxy CEO Mike Novogratz even got a tattoo to honor Luna on his arm. (Once UST and Luna collapsed, Novogratz said, “My tattoo will be a constant reminder that venture investing requires humility.”)
But even before the crypto market’s spectacular crash in early 2022, some signs of trouble had started to emerge.
Kwon was subpoenaed in 2021 by the U.S. Securities and Exchange Commission, which was considering an enforcement action and informed Kwon it was considering a lawsuit. The SEC inquiry was focused on Terra’s Mirror Protocol, a DeFi platform where synthetic stocks are minted and traded, and requested that Kwon provide testimony to U.S. regulators. Instead, according to legal filings, Kwon sued the SEC, arguing that he could not be subpoenaed as a resident of South Korea. At the same time, he was denying to the press that he had been served.
Things then went horribly wrong in early May, roughly a year after the SEC served Kwon.
On May 8, UST dropped to 98 cents, shying away from its $1 peg. Afraid, investors began to tweet at Kwon, asking him what was happening. In response, Kwon mocked their fears: “Is this $UST depeg in the room with us right now?” he tweeted.
But things continued to get worse. The next day, UST lost its $1 peg for a second time, falling to 35 cents. Kwon assured his 1 million Twitter followers that he was “Deploying more capital” to support the peg, but it did not work. Soon after, theories of an intentional attack on the Terra ecosystem emerged, and investors began to seriously worry, watching their holdings crash before their eyes. Both UST and Luna continued to free fall, as investors started selling both assets out of apparent fear and anxiety in numbers too great for the pegging system to keep working.
“You could have stopped the chain and then just stopped trading. Investors’ lives are in shambles. I will never support anything you do again. And I am in disbelief at your audacity,” one investor wrote on Terra’s forum. “I lost a million dollars in UST because of you. I trusted you.”
On May 12, the price of Luna dropped 96% in a day, down to less than 10 cents and has continued to hover around zero since.
Kwon went radio silent. Meanwhile, the trickle of allegations turned into a flood.
The Luna Foundation Guard (LFG), a so-called nonprofit organization established in the Republic of Singapore made to support the Terra ecosystem, loaned billions of dollars in Bitcoin to try to help UST regain its peg to no avail. The idea was to have Bitcoin in reserve to potentially meet UST redemption demand if things went south, but it failed miserably.
South Korean police reportedly moved to freeze the LFG’s assets after the Terra ecosystem collapse, while allegations surfaced by LFG governing council member Remi Tetot that the organization never had a multisig, or multi-signature wallet, alluding to the theory that Kwon and Terraform Labs controlled the LFG’s funds from the beginning. Typically, large funds have the protection of a multisig so bad actors cannot move funds at whim. Usually, at least two people on a multisig wallet need to agree to move any funds. Kwon previously said the LFG’s reserves were being held on a multisig of “seven directors,” but that seems to be inaccurate. (Tetot did not respond to Fortune’s request for comment.)
Many online were also confused after noticing that Terraform Labs Korea was dissolved just days before the crash, but Kwon and Terraform Labs claim the company had longstanding plans to incorporate in Singapore, saying the timing was coincidental. A Terraform Labs spokesperson shared a statement with Fortune that the company says it’s sending all journalists inquiring about the matter: “Winding down our Seoul and Busan branches was the conclusion of a process four months in the making, culminating in our official relocation to Singapore. Our focus is now on executing our plan to revive the Terra ecosystem.”
Some, like AngSiy and even Kwon, swear that Terra was intentionally attacked. Some analysts agree, pointing to on-chain proof of the possibility that there was a “concerted attack” on the Terra ecosystem. The attack theory speculates that an attacker had a major Bitcoin short position and wanted to push the price of Bitcoin down. By selling whale-size UST holdings, the attacker would cause panic, pushing the LFG to offload its Bitcoin to save UST, and tank the cryptocurrency’s price.
“The large withdrawals appeared to be timed precisely at the moment when Luna was most vulnerable,” Lucas Outumuro, head of research at IntoTheBlock, previously told Fortune, adding that he checked the data himself. “It lines up.”
However, in a report published on May 27, blockchain analytics firm Nansen refuted that one attacker was responsible for destabilizing UST. Instead, Nansen found that seven large holders of UST sold after due to its risk, which might’ve provoked the collapse.
Of the seven wallets, two “significantly impacted the UST de-peg,” Nansen reported. One of the prominent wallets was associated with cryptocurrency lending platform Celsius Network, the firm said. “The two identified wallets initiated significant outflow volume from Anchor Protocol during the de-peg event, totaling [about] 420M UST across 15 transactions.”
For their part, “Celsius did not have any positions intended to benefit from a Luna/UST depeg, and never executed any trade nor took any other action aiming at depegging UST. Celsius did not profit or benefit from the unfortunate situation with Luna/UST,” a Celsius representative told Fortune in an email. “As we do with any platform or protocol deployment, we carefully evaluate the risks and merits based on market conditions and the information available. As always, our customers are our top priority. Celsius’ deployment and risk management teams are vigilant in reacting appropriately to changing market conditions, and once we recognized shifts in the stability of the Luna ecosystem, we moved quickly to ensure the safety of assets on our platform and to protect our customers.”
Nansen said it analyzed transactional data on-chain between May 7 and May 11 for its report, but did not cover any potential off-chain events.
“The undercollateralized model was flawed from the ground up as Do Kwon personally knew thanks to his close involvement with Basis Cash,” “FatManTerra,” a pseudonymous Twitter user that amassed a following within the Terra community for his research on Kwon and what happened during the collapse, told Fortune. “In fact, [Kwon] pretended not to be associated with Basis Cash, calling it a ‘trap’ for retail, which was highly manipulative. Terra’s stabilization model was advertised as groundbreaking & novel, and Do Kwon pushed it.”
After the demise of Basis Cash, “Do Kwon forged on [with UST] out of sheer greed,” “FatMan” said.
Amid the fallout, Terraform Labs’ legal team reportedly resigned. Fortune reached out to a few former Terraform Labs counsel, but did not receive a response.
There are also rumors that mass arbitration lawsuits are being prepared on behalf of investors against major crypto firms after their facilitation of sales of UST and Luna, while Terra investors are reportedly looking to sue Kwon and Shin.
Kwon’s next gambit
In May, U.S. Treasury Secretary Janet Yellen mentioned Terra during hearings in the Senate.
“I think you’ve just illustrated that we just had this last week with Terra, and with Tether in illustration of the risks associated with stablecoins, that there can be runs,” Yellen said. “And we’ve seen this historically with private monies, and we invented a good regulatory framework, I think for dealing with this, [we’re] going to try to solve the depository [framework].”
Yellen even noted that “Terra is algorithmic and doesn’t really have a backing as such.”
After days of silence following the crash, Kwon emerged on May 16 to propose the creation of a new Terra blockchain that ditches its UST stablecoin. On May 18, Kwon officially put forth a governance proposal on-chain for community members to vote on. Kwon pushed for a Terra “rebirth” to start fresh again with a new network, separating from his failed one. When the vote closed on May 25, the majority of validators supported Kwon’s proposal, with more than 65% in favor, 20.9% abstain, .33% opposed, and 13.2% opposed with veto.
“He’s not [getting] his hands dirty. He’s not solving his problem. He’s using the others to set it up,” Kang said of Kwon and the proposal. Those who support the “new” Terra chain are motivated by “greed,” he said. The Terraform Labs spokesperson told Fortune that: “Terra is going to adapt and transform. We’re building back for our community. Our community voted on a rebuild, and we’re approaching Terra 2.0 with the same level of passion, with more knowledge and an appreciation for our well-intended critics.”
Some, like Alexandru Ast, owner of stake.systems and a Terra validator, who can verify transactions and participate in governance issues for the blockchain, voted “no with veto” to the Terra 2.0 proposal in hopes that Kwon would step down, Ast told Fortune. Though he thinks a new Terra chain is a good idea, and he doesn’t believe Kwon had anything to do with Terra’s demise, Ast thinks Kwon should “step off.”
“Some people think that Do Kwon should not step off because he’s the only person capable of pulling this out because he knows a lot of investors. This is absolutely true. But because of the recent events, he cannot occupy the position anymore—even if he’s the best asset in the world,” Ast said.
Nonetheless, Kwon remains ahead of Terra’s rebrand.
Following the Terra 2.0 launch on May 28, its new Luna token tanked and then shot up in value over the last few days before falling again. But many investors remain confused regarding the new Luna airdrop, which Kwon promised to holders of the old Luna token.
Kwon claims Terra 2.0 will be a “fully community-owned chain,” and to ensure that, he said that the Terraform Labs wallet would be removed from the new Luna token airdrop. But “FatMan” said “several Terraform Labs-funded and -controlled wallets weren’t blacklisted and got the full drop,” giving the company access to a portion of new Luna supply.
Since the airdrop, more allegations have continued to surface, and Kwon responds to those speaking out online about Terra 2.0 in the same way that he did prior to the crash: With insults.
To one Twitter user questioning the new chain’s code, Kwon replied that the answer is “in the governance proposal that launched the new network, which you obviously didn’t read. Cheers, fud [or spread fear, uncertainty, doubt] harder.”
Continuing the sketchiness, investors also reported being unable to withdraw their UST tokens on DeFi protocol Anchor in recent days. Anchor acknowledged the issue on Twitter on June 1, saying its platform has been fixed.
As of now, the only certainty is that the Terra ecosystem left countless investors suicidal, depressed and some say say they’ve lost their life savings, while Kwon begins again.
Like many others, Ast said he lost “a lot of money” due to the UST and Luna crash, but “I don’t blame anyone. Nobody forced us to buy the tokens. The result is individual.”
Similarly, “I lost a shit ton of money. I can go cry in a corner, or I can say this is a great learning opportunity,” AngSiy said.
If you think the Terra ecosystem was a Ponzi, you probably think all crypto investment projects and startups are Ponzis, AngSiy said. After all, “the whole concept of tokenization is a Ponzi. Like, that’s the point,” he said. “That’s why over 95% of all Web3 projects will die, but the ones that are successful will be very lucrative because you got in early on the Ponzi.”
While Fortune could not confirm, “FatMan” said his sources have warned that Kwon is already working on design plans for another decentralized stablecoin to be built atop Terra 2.0.
This story was updated on June 1, 2022.
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