The effect of the collapse of the Terraform Labs project led to a massive panic of investors and a fall in the cryptocurrency market, which is comparable to the consequences of the bankruptcy of the Lehman Brothers financial corporation in the banking sector.
The crypto community is in disarray after two promising Terraform Labs (TFL) Do Kwon projects simultaneously collapsed. And while we know in general terms what fueled the death fall spiral, there are still many questions, hard feelings, assumptions, and conspiracy theories about what exactly happened.
Let's turn to a brief chronology of events. On May 4, 2022, the analytical agency CoinShares published a weekly report in which it reported on the continuing decline of the cryptocurrency market and the outflow of institutional capital from cryptocurrency funds, as a result of which about $339 million was withdrawn in four weeks. CoinShares experts noted that investors of companies specializing in blockchain have succumbed to negative sentiment.
On May 5, when the cryptocurrency world was still sleeping peacefully, and the Terraform Labs directorate, as it will become obvious later, was preparing for the upcoming events, the reserve fund of the Luna Foundation Guard project (LFG) acquired $1.5 billion worth of BTC. For this purpose, UST stablecoins were used. Previously, Do Kwon, CEO of Terraform Labs (TFL), repeatedly mentioned that Terra plans to increase the volume of BTC to $10 billion, which will ensure the stability of the UST exchange rate.
In the same period, macro strategist Lyn Alden expressed concern that against the backdrop of a falling market, the active accumulation of LFG bitcoins may provoke investors to convert UST or LUNA stablecoins into fiat currency for its withdrawal. Alden also noted the high probability of a sharp decline in LUNA, which may force LFG to use BTC reserves to maintain the stability of the UST stablecoin.
Based on her assumptions, Alden concluded that TFL's stated 19.5% return on the Anchor Protocol (ANC) platform savings project is unattainable. Especially in conditions when the main driver of demand for UST is artificially high profitability, Anchor will disappear, which will lead to a massive withdrawal of investors ' funds in an unstable market.
On May 10, the cryptocurrency community was confronted with the fact that the third largest stablecoin TerraUSD (UST) lost its peg to the US dollar – at the moment, the UST exchange rate fell to $0.61. As Alden predicted, the LFG fund sold a significant amount of MTC collateral in an attempt to support the UST exchange rate, but this only brought down the LUNA exchange rate by 64%. The co-founder of the Terra project, Do Kwon, took to Twitter to ask customers not to panic and claim that the situation will soon stabilize.
On May 11, the Terra project collapsed. The rate of the previously popular UST stablecoin fell to $0.34, and the rate of the LUNA coin, which acted as UST collateral, collapsed from $115 to $5. On May 13, the Seongdong police station in Seoul received a statement that the day before an unknown person illegally entered the territory of Do Kwon's household and demanded an immediate meeting with him. His wife told the police that the location of their private residence was kept secret and asked the police to provide personal protection.
On May 14, Do Kwon addressed the cryptocurrency community on Twitter, saying that the collapse of the UST and LUNA exchange rates "broke his heart." The Terraform Labs co-founder claimed that neither he nor his related companies profited from the incident.
"Dropout or serial fraudster?"
Future co-founder of Terraform Labs Do Kwon (Do Kwon) was born on September 6, 1991 in Seoul. While studying at Stanford University, he worked as an engineer at Apple for three months, and then spent the same amount of time at Microsoft.
In 2016, Kwon founded his own telecommunications company, Anafi, where he was its director until 2017. In January 2018, Kwon partnered with Daniel Shin to co-found Terraform Labs and become the company's CEO. According to former Terra employees, Do Kwon was also the founder of another failed algorithmic stablecoin project, Basis Cash (BAC).
The launch of Basis Cash on the Ethereum blockchain took place at the end of 2020, shortly before the launch of UST. To create the Basis Cash project, an anonymous development team was formed, where the main backbone was made up of employees of Terraform Labs. The team modeled Basis Cash on an earlier but also unsuccessful Basis project, known as Basecoin. Its founder, Nader Al - Naji, has come to the attention of the U.S. Securities and Exchange Commission (SEC) after raising $140 million from investors. The SEC filed charges of violating the securities act, the Basis project was closed, and Al-Naji was forced to return money to investors.
The Basis Cash project is one of the first algorithmic stablecoins tested in real-world conditions, but also, like Terra, it did not retain dollar support. For Do Kwon, it was the first attempt to circumvent the requirements of regulatory authorities, in particular, the SEC.
Lehman Brothers of crypto
The panic on the part of investors caused by the fact that the collapse of the Terraform Lab project is taking place according to the most negative scenario, gave rise to some experts to call this situation: "Lehman Brothers of crypto". Thus, they drew an analogy between the current situation with TFL and the crisis in the banking sector caused by the bankruptcy of the largest financial institution. Thus, the value of the algorithmic stablecoin UST fell almost 100 times, it lost its peg to the US dollar, and the market capitalization of UST decreased by $16.6 billion. This led to a panic of investors and delisting of the asset on a number of cryptocurrency exchanges.
"I admit that in the whole situation there may be elements of the human factor, but if you abstract, then basically the same thing happens as with Bear Stearns or Lehman Brothers. They allowed the Lehman situation for cryptocurrency. And now, as the situation develops without the participation of the US Federal Reserve, we will see how the rest of the system will hold out in the near future, " Mark Carnegie, founder of the MHC Digital Asset Fund, shared his opinion.
Calculation errors or a "giant Ponzi scheme"
There are two types of stablecoins – algorithmic stablecoins and stablecoins backed by an underlying asset such as gold or the US dollar. UST refers to algorithmic stablecoins. Initially, the UST stablecoin is not backed by US dollars and depends on the value of BTC and LUNA, which it uses as its reserves.
The model assumed the use of a system with two crypto assets, in which one must remain stable (UST), and the other (LUNA) is designed to absorb volatility. At the same time, as an incentive for investment interest, it was proposed to deposit UST in the Anchor Protocol savings project, where investors were guaranteed an income of at least 19%, which was paid out of Terra reserves. It was this fact that raised the concerns of critics, who saw the UST model as either inflated expectations of the project manager, or a pre-planned "giant Ponzi scheme".
"Malicious intent"
As it became known to The Straits Times, despite the fact that TerraForm Labs was officially registered in Singapore, it did not apply for a license under the Payment Services Act. Also, TFL was not a notified entity, which means that it was not granted an exemption from mandatory licensing of activities with the Monetary Authority of Singapore (MAS). This may confirm the version that, like Basis, the TerraForm Labs project could have existed only before the first serious complaints from regulatory authorities were received. But, unlike Basis, no one was going to return funds to investors.
An additional reason for suspicion is the fact that by the decision of the general meeting of shareholders held on April 30, 2022, the Korean division of Terraform Labs was liquidated. The decision to liquidate went into effect on May 4, just days before UST and Luna collapsed. According to the corporate register entry, CEO Do Kwon is listed as the liquidator.
"Attack of Soros 'followers"
A cryptographer and blockchain expert under the nickname Onchain Wizard posted his own theory on Twitter, suggesting that the problems of TerraForm Labs could actually be the result of a secret attack on the Terra project. Somewhat in the style of George Soros, who made a bet against the British pound in 1992, then led a group of traders and collapsed the UK currency system, profiting from British taxpayers.
The point of view of Onchain Wizard is supported by crypto enthusiast @ napgener, who accused the American hedge fund Citadel and the investment company BlackRock of borrowing 100,000 BTC from the Gemini cryptocurrency exchange, exchanging them for UST, and then simultaneously dumping all UST, which dropped the market.
A possible scheme of attack by BlackRock and Citadel against Terra could look like this. In the run-up to the attack, BlackRock and Citadel converted 25,000 BTC from borrowed funds to UST. Next, they received Kwon's consent to buy out another large block in the MTC at a discount for UST. The transfer of a significant amount of UST instantly reduced the liquidity of the stablecoin.
Then the organizers of the attack dropped the rest of the BTC and all UST, which caused massive slippage and forced closing of positions of both assets. The resulting panic among investors, a massive sell-off of assets, in particular LUNA, as well as forced withdrawals from the Anchor Protocol (ANC), led to the destruction of the market and the loss of the UST peg to the US dollar.
As a result, BlackRock and Citadel were able to buy out the MTC on a cheap basis, pay off the loan and make money on the difference. Cryptocurrency giants Gemini, BlackRock and Citadel refute rumors about their involvement in trading operations that provoked the weakening of the peg of the UST stablecoin to the US dollar.
Possible consequences
AirTree Ventures partner John Henderson believes that the collapse of UST was a setback for DeFi, but not an existential crisis for the entire crypto sector. In his opinion, " in the future, many will fail and people will lose money again, as this is a story of innovation, experimentation and markets." UST was one of the latest early-stage stablecoin experiments, and while its collapse is widely felt, it was a predictable phenomenon in an emerging market, Henderson said.
HEX founder Richard Heart believes that the problem with Terra is centralized decision - making. Do Kwon, Hart says, only bought bitcoins successfully and doesn't understand what market cycles are. King River Capital co-founder Chris Barter shares Hart's and Henderson's views. According to the expert, the cryptocurrency market follows the patterns observed in traditional investment spheres.
"Crypto market cycles regularly show pullbacks from 50% to 85%. This is the nature of this asset class, and we have previously seen numerous questionable projects reduced to zero, " he said.
The effect of Terra's decline in recent days has spread to other stablecoins, including Tether – the largest stablecoin with a market capitalization of about $81 billion. TRX USDD is also under suspicion.
Who's next in line?
Investors have long wondered what reserves Tether has to support its peg to the US dollar. As a result, amid fears of a collapse of Tether due to the fall of LUNA and UST, the USDT stablecoin is trading at $0.99.
The developers of the Tether stablecoin assured traders of the reliability of USDT and warned about speculators trying to make money on manipulating opinions. Representatives of Tether announced that they are going to move more than $1 billion worth of stablecoins from the Tron blockchain to Ethereum, as well as $20 million to Avalanche.
Tron founder Justin Sun has announced the creation of a $2 billion reserve to protect TRX from rising short positions.
"The short position funding rate on Binance exceeds 100% per annum. It seems that TRX-the next target after LUNA and Tron-will direct $2 billion to fight them," he wrote on Twitter.
Sun added that during market turbulence, the US dollar remains the most stable. TRX now has a total capitalization of $270 million, and the value of TRX DAO Reserve is $10 billion. USDD is currently trading at $0.996. The rate of UST stablecoin at the time of publication is $0.09089, and LUNA coins – $0.0001481.
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The founder of Terraform Labs denied rumors that he is on the run, and called attempts to find out his location a gross invasion of privacy.
Do Kwon, CEO of Terraform Labs, assured that he is not hiding from law enforcement agencies and "agencies that want to meet" with him or with colleagues, as he works closely with the authorities and is not going to hide anything.
The businessman drew attention to the fact that his company is now defending its rights in the jurisdictions of several countries at once:
"We adhere to an absolutely fair policy, and over the next few months we look forward to the decision of the judicial authorities."
Do Kwon added that he is not going to disclose to outsiders where he is now, since he can only trust such information to close people. The creator of Terraform Labs is outraged by the fact that outsiders are trying to find out his location — this, they say, is nothing more than "an invasion of privacy."
South Korean authorities in July ordered the Terraform directorate to notify about entry and exit from the country. In September, a Seoul court issued an arrest warrant for Do Kwon and five top project managers for violating capital market rules that caused major losses for the industry. Later, the Ministry of Foreign Affairs of South Korea announced that it intends to revoke the citizenship of the former CEO of Terraform Labs and his colleagues.
---
South Korean law enforcement agencies said that they received the history of correspondence between the former head of Terraform Labs and a subordinate, where he directly asked to manipulate the price of cryptocurrencies.
The prosecutor's office of South Korea published a report from which it follows that law enforcement officers managed to obtain evidence that the co-founder of Terraform Labs Do Kwon (Do Kwon) at least once asked an employee of his company to manipulate the price of Terra Luna Classic (LUNC). The prosecutor's office keeps a history of conversations between the employee and the co-founder in the messenger.
Details about the manipulation were not disclosed, but Do Kwon's representatives continue to deny all the charges, saying that the case against him is based on baseless arguments. Representatives of the former head of Terraform Labs believe that the case is too politicized and cannot continue under such circumstances.
"Do Kwon, wherever he appears, will be considered an illegal immigrant and will not be able to legally travel between countries, and his South Korean passport has been revoked. If Do Kwon is found, he will have to deal with a $57 million lawsuit, and most likely the businessman will be deported back to South Korea," Korean law enforcement officials say.
Kwon himself is in no hurry to reveal the location, stating that if he does, he will immediately be sent to prison. And his activity in social networks remained at least at the same level. His last tweet was dated November 3, when Kwon said that the last few weeks have been particularly creative and prolific for him.
---
The South Korean authorities have engaged the co-founder of Terraform Labs, Shin Hyun-sung, to investigate the activities of Terra. It is assumed that he could intentionally contribute to the collapse of the project.
The Seoul Southern District Prosecutor's Office, together with a group of law enforcement officers investigating financial and securities crimes, announced that Shin Hyun-Seong will give his testimony this week. Police allege that the Terra co-founder owned a large amount of LUNA. Even before the collapse of the project, he decided to sell them without the knowledge of investors, and earned 140 billion won (about $105 million) from the illegal sale.
Hyun-sung's lawyer denies accusations that the Terraform Labs co-founder intentionally sold LUNA at the peak of the popularity of these coins. Hyun-sung's profile on the business social network LinkedIn indicates that he has not been associated with Terraform Labs since January 2020. Then he founded the fintech company Chai Corporation and now holds the position of CEO in it.
According to media reports, Hyun-sung is still in South Korea, while the whereabouts of another Terra founder, Do Kwon, remains unknown. More than 4,000 UST investors joined together to search for him, but Kwon himself has repeatedly stated that he is not hiding from law enforcement agencies.
---
Montenegro's law enforcement agencies reported that they detained the co-founder and CEO of Terraform Labs at the airport of the capital.
The Balkan country's Foreign Minister, Filip Adzic, said Do Kwon had become "one of the most wanted fugitives".
"The former " cryptocurrency king", who is behind the losses of more than $40 billion, was detained at the airport of Podgorica with false documents. He is wanted by South Korea, the United States and Singapore. We are waiting for official confirmation of the identity, " the official wrote on Twitter. In February, the U.S. Securities and Exchange Commission (SEC) sued Terraform Labs and Do Kwon for "organizing a multibillion-dollar fraud."
The SEC statement highlights that Do Kwon and the company he organized, Terraform Labs, sold "an interconnected set of digital securities as part of illegal transactions." The regulator noted the collapse of the UST algorithmic stablecoin, the creation of the USTC token and the associated LUNC cryptocurrency.
The Federal Bureau of Investigation and the Southern District of New York (SDNY) have already questioned former Terraform Labs employees who were involved in the USTC stablecoin. The investigators talked about the relationship between the South Korean payment platform Chai and the Terra blockchain, on which USTC worked.
Singapore's law enforcement agencies in March launched an investigation into the activities of Terraform Labs, as well as its CEO. Back in February, it was reported that South Korean law enforcement officials went to Serbia to search for the CEO of Terraform Labs and turned to the local government for assistance in extradition.
According to the investigative authorities, immediately after an arrest warrant was issued for Do Kwon in September 2022, he fled from Singapore to Dubai, and then to Serbia.
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The New York Federal Prosecutor's Office charged co-founder and CEO of Terraform Labs (TFL) Do Kwon a few hours after he was detained in Montenegro.
The document includes eight points, including conspiracy to defraud and manipulate the market, securities fraud, and misleading investors.
"Kwon agreed with others to deceive buyers of cryptocurrencies issued by TFL by misleading them about the effectiveness of the algorithmic mechanism that allegedly ensured UST price stability, through false statements and market manipulation," the supervisory authority said.
The lawsuit is filed in the Southern District Court of New York. A representative of the prosecutor's office in a comment to CoinDesk clarified that the Ministry of Justice intends to achieve the extradition of Kwon to the United States.
---
Montenegro's Supreme Court in Podgorica has approved the extradition of the Terra founder to South Korea or the United States, according to the choice of countries that have claims against the former project manager.
The final decision on extradition will be made by Montenegro's Justice Minister after Do Kwon has served a four-month prison sentence in the Balkan country for forgery of documents.
"If the Minister of Justice authorizes the final extradition of the accused, the extradition will be carried out immediately after the execution of the criminal sentence," the court document says.
The crypto community is in disarray after two promising Terraform Labs (TFL) Do Kwon projects simultaneously collapsed. And while we know in general terms what fueled the death fall spiral, there are still many questions, hard feelings, assumptions, and conspiracy theories about what exactly happened.
Let's turn to a brief chronology of events. On May 4, 2022, the analytical agency CoinShares published a weekly report in which it reported on the continuing decline of the cryptocurrency market and the outflow of institutional capital from cryptocurrency funds, as a result of which about $339 million was withdrawn in four weeks. CoinShares experts noted that investors of companies specializing in blockchain have succumbed to negative sentiment.
On May 5, when the cryptocurrency world was still sleeping peacefully, and the Terraform Labs directorate, as it will become obvious later, was preparing for the upcoming events, the reserve fund of the Luna Foundation Guard project (LFG) acquired $1.5 billion worth of BTC. For this purpose, UST stablecoins were used. Previously, Do Kwon, CEO of Terraform Labs (TFL), repeatedly mentioned that Terra plans to increase the volume of BTC to $10 billion, which will ensure the stability of the UST exchange rate.
In the same period, macro strategist Lyn Alden expressed concern that against the backdrop of a falling market, the active accumulation of LFG bitcoins may provoke investors to convert UST or LUNA stablecoins into fiat currency for its withdrawal. Alden also noted the high probability of a sharp decline in LUNA, which may force LFG to use BTC reserves to maintain the stability of the UST stablecoin.
Based on her assumptions, Alden concluded that TFL's stated 19.5% return on the Anchor Protocol (ANC) platform savings project is unattainable. Especially in conditions when the main driver of demand for UST is artificially high profitability, Anchor will disappear, which will lead to a massive withdrawal of investors ' funds in an unstable market.
On May 10, the cryptocurrency community was confronted with the fact that the third largest stablecoin TerraUSD (UST) lost its peg to the US dollar – at the moment, the UST exchange rate fell to $0.61. As Alden predicted, the LFG fund sold a significant amount of MTC collateral in an attempt to support the UST exchange rate, but this only brought down the LUNA exchange rate by 64%. The co-founder of the Terra project, Do Kwon, took to Twitter to ask customers not to panic and claim that the situation will soon stabilize.
On May 11, the Terra project collapsed. The rate of the previously popular UST stablecoin fell to $0.34, and the rate of the LUNA coin, which acted as UST collateral, collapsed from $115 to $5. On May 13, the Seongdong police station in Seoul received a statement that the day before an unknown person illegally entered the territory of Do Kwon's household and demanded an immediate meeting with him. His wife told the police that the location of their private residence was kept secret and asked the police to provide personal protection.
On May 14, Do Kwon addressed the cryptocurrency community on Twitter, saying that the collapse of the UST and LUNA exchange rates "broke his heart." The Terraform Labs co-founder claimed that neither he nor his related companies profited from the incident.
"Dropout or serial fraudster?"
Future co-founder of Terraform Labs Do Kwon (Do Kwon) was born on September 6, 1991 in Seoul. While studying at Stanford University, he worked as an engineer at Apple for three months, and then spent the same amount of time at Microsoft.
In 2016, Kwon founded his own telecommunications company, Anafi, where he was its director until 2017. In January 2018, Kwon partnered with Daniel Shin to co-found Terraform Labs and become the company's CEO. According to former Terra employees, Do Kwon was also the founder of another failed algorithmic stablecoin project, Basis Cash (BAC).
The launch of Basis Cash on the Ethereum blockchain took place at the end of 2020, shortly before the launch of UST. To create the Basis Cash project, an anonymous development team was formed, where the main backbone was made up of employees of Terraform Labs. The team modeled Basis Cash on an earlier but also unsuccessful Basis project, known as Basecoin. Its founder, Nader Al - Naji, has come to the attention of the U.S. Securities and Exchange Commission (SEC) after raising $140 million from investors. The SEC filed charges of violating the securities act, the Basis project was closed, and Al-Naji was forced to return money to investors.
The Basis Cash project is one of the first algorithmic stablecoins tested in real-world conditions, but also, like Terra, it did not retain dollar support. For Do Kwon, it was the first attempt to circumvent the requirements of regulatory authorities, in particular, the SEC.
Lehman Brothers of crypto
The panic on the part of investors caused by the fact that the collapse of the Terraform Lab project is taking place according to the most negative scenario, gave rise to some experts to call this situation: "Lehman Brothers of crypto". Thus, they drew an analogy between the current situation with TFL and the crisis in the banking sector caused by the bankruptcy of the largest financial institution. Thus, the value of the algorithmic stablecoin UST fell almost 100 times, it lost its peg to the US dollar, and the market capitalization of UST decreased by $16.6 billion. This led to a panic of investors and delisting of the asset on a number of cryptocurrency exchanges.
"I admit that in the whole situation there may be elements of the human factor, but if you abstract, then basically the same thing happens as with Bear Stearns or Lehman Brothers. They allowed the Lehman situation for cryptocurrency. And now, as the situation develops without the participation of the US Federal Reserve, we will see how the rest of the system will hold out in the near future, " Mark Carnegie, founder of the MHC Digital Asset Fund, shared his opinion.
Calculation errors or a "giant Ponzi scheme"
There are two types of stablecoins – algorithmic stablecoins and stablecoins backed by an underlying asset such as gold or the US dollar. UST refers to algorithmic stablecoins. Initially, the UST stablecoin is not backed by US dollars and depends on the value of BTC and LUNA, which it uses as its reserves.
The model assumed the use of a system with two crypto assets, in which one must remain stable (UST), and the other (LUNA) is designed to absorb volatility. At the same time, as an incentive for investment interest, it was proposed to deposit UST in the Anchor Protocol savings project, where investors were guaranteed an income of at least 19%, which was paid out of Terra reserves. It was this fact that raised the concerns of critics, who saw the UST model as either inflated expectations of the project manager, or a pre-planned "giant Ponzi scheme".
"Malicious intent"
As it became known to The Straits Times, despite the fact that TerraForm Labs was officially registered in Singapore, it did not apply for a license under the Payment Services Act. Also, TFL was not a notified entity, which means that it was not granted an exemption from mandatory licensing of activities with the Monetary Authority of Singapore (MAS). This may confirm the version that, like Basis, the TerraForm Labs project could have existed only before the first serious complaints from regulatory authorities were received. But, unlike Basis, no one was going to return funds to investors.
An additional reason for suspicion is the fact that by the decision of the general meeting of shareholders held on April 30, 2022, the Korean division of Terraform Labs was liquidated. The decision to liquidate went into effect on May 4, just days before UST and Luna collapsed. According to the corporate register entry, CEO Do Kwon is listed as the liquidator.
"Attack of Soros 'followers"
A cryptographer and blockchain expert under the nickname Onchain Wizard posted his own theory on Twitter, suggesting that the problems of TerraForm Labs could actually be the result of a secret attack on the Terra project. Somewhat in the style of George Soros, who made a bet against the British pound in 1992, then led a group of traders and collapsed the UK currency system, profiting from British taxpayers.
The point of view of Onchain Wizard is supported by crypto enthusiast @ napgener, who accused the American hedge fund Citadel and the investment company BlackRock of borrowing 100,000 BTC from the Gemini cryptocurrency exchange, exchanging them for UST, and then simultaneously dumping all UST, which dropped the market.
A possible scheme of attack by BlackRock and Citadel against Terra could look like this. In the run-up to the attack, BlackRock and Citadel converted 25,000 BTC from borrowed funds to UST. Next, they received Kwon's consent to buy out another large block in the MTC at a discount for UST. The transfer of a significant amount of UST instantly reduced the liquidity of the stablecoin.
Then the organizers of the attack dropped the rest of the BTC and all UST, which caused massive slippage and forced closing of positions of both assets. The resulting panic among investors, a massive sell-off of assets, in particular LUNA, as well as forced withdrawals from the Anchor Protocol (ANC), led to the destruction of the market and the loss of the UST peg to the US dollar.
As a result, BlackRock and Citadel were able to buy out the MTC on a cheap basis, pay off the loan and make money on the difference. Cryptocurrency giants Gemini, BlackRock and Citadel refute rumors about their involvement in trading operations that provoked the weakening of the peg of the UST stablecoin to the US dollar.
Possible consequences
AirTree Ventures partner John Henderson believes that the collapse of UST was a setback for DeFi, but not an existential crisis for the entire crypto sector. In his opinion, " in the future, many will fail and people will lose money again, as this is a story of innovation, experimentation and markets." UST was one of the latest early-stage stablecoin experiments, and while its collapse is widely felt, it was a predictable phenomenon in an emerging market, Henderson said.
HEX founder Richard Heart believes that the problem with Terra is centralized decision - making. Do Kwon, Hart says, only bought bitcoins successfully and doesn't understand what market cycles are. King River Capital co-founder Chris Barter shares Hart's and Henderson's views. According to the expert, the cryptocurrency market follows the patterns observed in traditional investment spheres.
"Crypto market cycles regularly show pullbacks from 50% to 85%. This is the nature of this asset class, and we have previously seen numerous questionable projects reduced to zero, " he said.
The effect of Terra's decline in recent days has spread to other stablecoins, including Tether – the largest stablecoin with a market capitalization of about $81 billion. TRX USDD is also under suspicion.
Who's next in line?
Investors have long wondered what reserves Tether has to support its peg to the US dollar. As a result, amid fears of a collapse of Tether due to the fall of LUNA and UST, the USDT stablecoin is trading at $0.99.
The developers of the Tether stablecoin assured traders of the reliability of USDT and warned about speculators trying to make money on manipulating opinions. Representatives of Tether announced that they are going to move more than $1 billion worth of stablecoins from the Tron blockchain to Ethereum, as well as $20 million to Avalanche.
Tron founder Justin Sun has announced the creation of a $2 billion reserve to protect TRX from rising short positions.
"The short position funding rate on Binance exceeds 100% per annum. It seems that TRX-the next target after LUNA and Tron-will direct $2 billion to fight them," he wrote on Twitter.
Sun added that during market turbulence, the US dollar remains the most stable. TRX now has a total capitalization of $270 million, and the value of TRX DAO Reserve is $10 billion. USDD is currently trading at $0.996. The rate of UST stablecoin at the time of publication is $0.09089, and LUNA coins – $0.0001481.
---
The founder of Terraform Labs denied rumors that he is on the run, and called attempts to find out his location a gross invasion of privacy.
Do Kwon, CEO of Terraform Labs, assured that he is not hiding from law enforcement agencies and "agencies that want to meet" with him or with colleagues, as he works closely with the authorities and is not going to hide anything.
The businessman drew attention to the fact that his company is now defending its rights in the jurisdictions of several countries at once:
"We adhere to an absolutely fair policy, and over the next few months we look forward to the decision of the judicial authorities."
Do Kwon added that he is not going to disclose to outsiders where he is now, since he can only trust such information to close people. The creator of Terraform Labs is outraged by the fact that outsiders are trying to find out his location — this, they say, is nothing more than "an invasion of privacy."
South Korean authorities in July ordered the Terraform directorate to notify about entry and exit from the country. In September, a Seoul court issued an arrest warrant for Do Kwon and five top project managers for violating capital market rules that caused major losses for the industry. Later, the Ministry of Foreign Affairs of South Korea announced that it intends to revoke the citizenship of the former CEO of Terraform Labs and his colleagues.
---
South Korean law enforcement agencies said that they received the history of correspondence between the former head of Terraform Labs and a subordinate, where he directly asked to manipulate the price of cryptocurrencies.
The prosecutor's office of South Korea published a report from which it follows that law enforcement officers managed to obtain evidence that the co-founder of Terraform Labs Do Kwon (Do Kwon) at least once asked an employee of his company to manipulate the price of Terra Luna Classic (LUNC). The prosecutor's office keeps a history of conversations between the employee and the co-founder in the messenger.
Details about the manipulation were not disclosed, but Do Kwon's representatives continue to deny all the charges, saying that the case against him is based on baseless arguments. Representatives of the former head of Terraform Labs believe that the case is too politicized and cannot continue under such circumstances.
"Do Kwon, wherever he appears, will be considered an illegal immigrant and will not be able to legally travel between countries, and his South Korean passport has been revoked. If Do Kwon is found, he will have to deal with a $57 million lawsuit, and most likely the businessman will be deported back to South Korea," Korean law enforcement officials say.
Kwon himself is in no hurry to reveal the location, stating that if he does, he will immediately be sent to prison. And his activity in social networks remained at least at the same level. His last tweet was dated November 3, when Kwon said that the last few weeks have been particularly creative and prolific for him.
---
The South Korean authorities have engaged the co-founder of Terraform Labs, Shin Hyun-sung, to investigate the activities of Terra. It is assumed that he could intentionally contribute to the collapse of the project.
The Seoul Southern District Prosecutor's Office, together with a group of law enforcement officers investigating financial and securities crimes, announced that Shin Hyun-Seong will give his testimony this week. Police allege that the Terra co-founder owned a large amount of LUNA. Even before the collapse of the project, he decided to sell them without the knowledge of investors, and earned 140 billion won (about $105 million) from the illegal sale.
Hyun-sung's lawyer denies accusations that the Terraform Labs co-founder intentionally sold LUNA at the peak of the popularity of these coins. Hyun-sung's profile on the business social network LinkedIn indicates that he has not been associated with Terraform Labs since January 2020. Then he founded the fintech company Chai Corporation and now holds the position of CEO in it.
According to media reports, Hyun-sung is still in South Korea, while the whereabouts of another Terra founder, Do Kwon, remains unknown. More than 4,000 UST investors joined together to search for him, but Kwon himself has repeatedly stated that he is not hiding from law enforcement agencies.
---
Montenegro's law enforcement agencies reported that they detained the co-founder and CEO of Terraform Labs at the airport of the capital.
The Balkan country's Foreign Minister, Filip Adzic, said Do Kwon had become "one of the most wanted fugitives".
"The former " cryptocurrency king", who is behind the losses of more than $40 billion, was detained at the airport of Podgorica with false documents. He is wanted by South Korea, the United States and Singapore. We are waiting for official confirmation of the identity, " the official wrote on Twitter. In February, the U.S. Securities and Exchange Commission (SEC) sued Terraform Labs and Do Kwon for "organizing a multibillion-dollar fraud."
The SEC statement highlights that Do Kwon and the company he organized, Terraform Labs, sold "an interconnected set of digital securities as part of illegal transactions." The regulator noted the collapse of the UST algorithmic stablecoin, the creation of the USTC token and the associated LUNC cryptocurrency.
The Federal Bureau of Investigation and the Southern District of New York (SDNY) have already questioned former Terraform Labs employees who were involved in the USTC stablecoin. The investigators talked about the relationship between the South Korean payment platform Chai and the Terra blockchain, on which USTC worked.
Singapore's law enforcement agencies in March launched an investigation into the activities of Terraform Labs, as well as its CEO. Back in February, it was reported that South Korean law enforcement officials went to Serbia to search for the CEO of Terraform Labs and turned to the local government for assistance in extradition.
According to the investigative authorities, immediately after an arrest warrant was issued for Do Kwon in September 2022, he fled from Singapore to Dubai, and then to Serbia.
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The New York Federal Prosecutor's Office charged co-founder and CEO of Terraform Labs (TFL) Do Kwon a few hours after he was detained in Montenegro.
The document includes eight points, including conspiracy to defraud and manipulate the market, securities fraud, and misleading investors.
"Kwon agreed with others to deceive buyers of cryptocurrencies issued by TFL by misleading them about the effectiveness of the algorithmic mechanism that allegedly ensured UST price stability, through false statements and market manipulation," the supervisory authority said.
The lawsuit is filed in the Southern District Court of New York. A representative of the prosecutor's office in a comment to CoinDesk clarified that the Ministry of Justice intends to achieve the extradition of Kwon to the United States.
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Montenegro's Supreme Court in Podgorica has approved the extradition of the Terra founder to South Korea or the United States, according to the choice of countries that have claims against the former project manager.
The final decision on extradition will be made by Montenegro's Justice Minister after Do Kwon has served a four-month prison sentence in the Balkan country for forgery of documents.
"If the Minister of Justice authorizes the final extradition of the accused, the extradition will be carried out immediately after the execution of the criminal sentence," the court document says.
