Do Kwon
Do Kwon is a South Korean cryptocurrency developer, co-founder and CEO of Terraform Labs, and founder of Anify. He currently lives in Singapore.
The developer was born on September 6, 1991 in South Korea. At the end of 2021, Kwon himself told CoinDesk that as a child, he loved reading «theoretical works» and «traveled the world» a lot with his father, who was engaged in the supply of pharmaceuticals and medical equipment.
He graduated from Daewon Foreign Language High School in Seoul. In June 2015, he received a bachelor’s degree in computer science from Stanford University. Kwon worked as an engineer at Apple and Microsoft for three months each. After that, he returned to South Korea to found the telecommunications company Anify in September 2015, where he served as CEO until 2017.
It was obvious that Kwon had the ability to work with the audience and also had connections at the highest level in South Korea — according to CB Insights, Anyfi received support from the South Korean venture capital company Lotte Ventures. Do Kwon’s company was also selected to participate in the TIPS startup support program within 7 months of its founding. In 2019, the developer was included in the Forbes 30 Under 30 rating.
In 2018, Do Kwon and Daniel Shin founded Terraform Labs, a blockchain technology company, to develop the Chai payment app and a stablecoin for transactions. Terraform Labs developed Terra Proof-of-Stake (PoS), a public blockchain built on the Cosmos SDK.
Co-founders Terra Daniel Shin and Do Kwon
At the same time, Kwon and Terraform Labs employees worked on the algorithmic stablecoin Basis Cash, which was launched in 2020 without any connection to the company itself.
Kwon led the development of Basis Cash under the pseudonym DeFi Rick («decentralized Rick»), a reference to Rick Sanchez, the mad scientist from the Rick and Morty cartoon series. Two former employees of Terraform Labs confirmed that Kwon used the name Rick in media interviews and in their group Telegram chat dedicated to Basis Cash.
According to the former Terraform Labs employee, who wished to remain anonymous, Basis Cash was intended to test DeFi on Ethereum before the UST launch. However, due to weak code and algorithm settings, the token failed to maintain its peg to $ 1 after launch.
The trial launch of Basis Cash, Kwon’s first stablecoin, was a complete failure — the token lost $ 54.5 million in value. The failure was concealed — Kwon worked under the pseudonym DeFi Rick, and few people knew that he was the one behind the project. A few months later, Kwon returned with a new experiment called UST, based on the same infrastructure.
The cartoon character Rick Sanchez, who became the prototype for Do Kwon’s pseudonym «DeFi Rick»
The rise of UST and Luna
UST is an algorithmic stablecoin. Its value is maintained by an algorithm that balances UST with its «partner» coin Luna. At the beginning of 2022, at the peak of their development, UST and Luna reached a combined valuation of $ 60 billion.
Each time a UST token is issued, the amount of Luna equal to $ 1 is «burned» (withdrawn from circulation), and vice versa. To keep the system running, a Terra-based DeFi protocol called Anchor promised users a 20% return if they deposit their UST tokens in the app.
According to former employees of Terraform Labs, Kwon did not know that the UST ecosystem would crash like Basis Cash. However, several years ago, there were already warnings on social media that this could happen. Crypto analysts noted that only Luna could save UST in the event of a collapse. But if investors start to panic, Luna will continue to fall, followed by UST, which will cause the collapse of both currencies.
Kwon did not heed such warnings and in response often called his critics «poor». «I don’t argue with the poor on Twitter,» he wrote in 2021. Commenting on Kwon’s behavior on Twitter, some former Terraform Labs team members say that it is only an image, and in real life he is a «very good and generous person» who «tried to take care of employees.»
However, according to a former employee, engineers complained about low salaries. In addition, according to former Terraform Labs engineer Hyunseok Kang, Kwon treats only a select few people who are «loyal to him» well.
The initial team of Terra
Later, its co-founder Shin left Terraform Labs. According to him, he decided to focus on the Chai payment service. What really happened is unknown. For example, in 2020, CoinDesk Korea reported that Chai users were «connected to Terra against their will.»
Nevertheless, Kwon continued to run Terraform Labs and raise funding from leading venture capital companies. Among them are Pantera Capital, Arrington Capital, and Hashed, which, as Kwon boasted, invested «even without a project presentation.» According to CB Insights, Binance Labs, Coinbase Ventures, and Galaxy Digital, among others, have also invested in Terraform Labs.
The fall of the Terra ecosystem
Problems around Terraform Labs and UST began to arise even before the cryptocurrency market seriously collapsed in early 2022.
In 2021, the U.S. Securities and Exchange Commission (SEC) launched an investigation into the Terra Mirror protocol, a DeFi platform on which synthetic stocks are issued and traded. Kwon was asked to testify before the US regulators.
Instead, according to legal documents, Kwon filed a lawsuit against the SEC, claiming that he could not be subpoenaed because he is a South Korean resident. At the same time, speaking to the media, he denied that he had received a subpoena.
On May 8, 2022 (about a year after these events), the value of the UST dropped to $ 0.98, losing its peg to $ 1. Frightened investors turned to Kwon for clarification. However, he only laughed off their fears. «Is this loss of UST’s dollar peg in the room with us now?» — Kwon wrote on Twitter.
The situation continued to deteriorate: the next day, the UST price dropped to $ 0.35. Addressing his 1 million Twitter followers, Kwon assured them that he was «investing more capital» to maintain the peg, but it didn’t help.
Soon, theories about a deliberate attack on the Terra ecosystem emerged, and investors became seriously concerned and began selling UST and Luna in too large numbers for the system to continue to operate. On May 12, the value of Luna dropped by 96% in one day (below $ 0.10) and has been hovering around zero since then. Kwon has not commented on the situation, and the project has been hit with accusations.
The Luna Foundation Guard (LFG), a non-profit organization established in Singapore to support the Terra ecosystem, has invested billions of dollars in bitcoins to restore the value of UST to $ 1. The idea was to create reserves in bitcoins to meet possible demand for UST redemptions. However, this did not work.
It is reported that the South Korean police froze LFG’s assets after the Terra ecosystem collapsed. At the same time, LFG board member Remy Tetot wrote on Twitter that the organization did not have a multi-signature wallet (Multisig). This information suggests the theory that Kwon and Terraform Labs controlled LFG’s funds from the very beginning.
Typically, large funds protect their assets with a multi-signature to prevent unscrupulous participants from moving them at their discretion — at least two people must agree to this. Kwon previously stated that LFG’s funds are protected by the multi-signature of «seven directors.»
Many users noticed that Terraform Labs Korea had closed its South Korean offices just a few days before the fall. However, Kwon and Terraform Labs claim that the coincidence is coincidental, and the company has long been planning to move to Singapore.
Intellabridge Technology’s Vice President of DeFi, Ronald EngSee, is convinced that the Terra ecosystem has been attacked in an organized manner. EngCy lost more than $ 1 million on investments in UST and Luna, but continues to consider Kwon «a brilliant and wonderful person.» His opinion is shared by some other users, as well as analysts who note that evidence can be found on the blockchain.
According to the theory of a deliberate attack, the attacker had a large short position in bitcoin and intended to reduce the value of UST. By selling huge UST assets, he causes a panic, which leads LFG to send bitcoins to save UST, the price of which begins to fall.
«Apparently, the large-scale withdrawal occurred at a time when Luna was most vulnerable,» said Lucas Outumuro, head of research at IntoTheBlock, adding that he had verified the data himself.
It is reported that after all these events, Terraform Labs' team of lawyers left, and investors plan to sue both the major crypto exchanges that facilitated the sale of UST and Luna and the company’s founders.
Meeting of politicians and executives of Korean exchanges on the LUNA/UST incident at the Korean National Assembly building
Kwon’s new project
On May 16, after several days of silence following the project’s failure, Kwon proposed creating a new Terra blockchain that would not use the UST stablecoin. On May 18, a vote was held among members of the crypto community, and the majority (65%) supported this proposal.
The main Terra 2.0 network was launched on May 28 with the Phoenix-1 identifier.
Former Terraform Labs engineer Hyunseok Kang believes that the users who supported the creation of Terra 2.0 are acting «greedily» and that Kwon himself is «using others» to solve his problems.
Some members of the community voted «against with veto», hoping that Kwon would leave the project. At the same time, some believe that the creation of a new Terra network is a good idea, and that Kwon has nothing to do with the demise of its previous version. Terra’s validator said he lost «a lot of money» on UST and Luna, but «doesn't blame anyone for that.»
«If you think that the Terra ecosystem was a pyramid scheme, then you probably feel the same way about all cryptocurrency projects and startups,» says EngSay. In his opinion, the very concept of tokenization is a pyramid scheme: «That's why more than 95% of Web3 projects will fail, and the successful ones will be very profitable for those who entered the pyramid early.»
It is currently unclear how the fate of the new blockchain will develop. There are only two things we can say with certainty: Kwon is definitely capable of gaining people’s trust, and all the DeFi projects he has launched in his almost ten-year career have failed.