Kwon is most known for being the CEO and co-founder of Terraform Labs, the company that created the Terra blockchain and the LUNA and TerraUSD tokens. The LUNA token was one of the most successful digital currencies by market capitalization at its peak in April 2022.
TerraUSD and LUNA collapsed in May 2022 and Kwon has faced both legal and criminal charges by various governments and individual investors since.
Personal history
Do Kwon was born in Seoul, South Korea, in September 1991. He received a Bachelor of Science degree from Stanford University in 2015 and worked briefly as a software engineer at Apple and Microsoft.
He returned to South Korea in early 2016 to found his first startup, Anyfi, which used a mesh network to deploy bandwidth to users without internet access. The startup raised $1 million from investors. Kwon was the CEO until 2017 when he decided to leave and focus on cryptocurrency.
Kwon is known for his bombastic personality, sparring with critics on Twitter and posting combative tweets. “I don’t debate the poor,” he replied to an economist who questioned TerraUSD’s algorithmic model. In 2021, Kwon and Terraform labs sued the SEC (the US Securities and Exchange Commission) after it issued a subpoena for its software, a move largely seen as retaliatory.
Kwon named his daughter Luna, tweeting after her birth in April 2022: "My dearest creation named after my greatest invention.”
Role in the cryptocurrency community
Kwon started learning about cryptocurrency through his work with distributed networks at Anyfi. In 2017, he noticed that, while the crypto market exploded in popularity, the technologies were not widely accessible and didn’t yet provide “real use” value.
As a result, he co-wrote a whitepaper for a decentralized payment system that would feature a stabilized digital currency that would be used as a medium of exchange. In the paper, Kwon argued that a cryptocurrency that achieves stability thanks to an ‘elastic money supply’ would remove the volatility from cryptocurrencies like Bitcoin while remaining decentralized.
The paper attracted the attention of Daniel Shin, a successful entrepreneur in the Korean tech space. Shin has extensive experience in online payment systems and was enticed by the decentralized solution Kwon had outlined.
Terraform Labs
Kwon and Shin co-founded Terraform Labs in 2018. The company’s mission focused on the rapid adoption of digital currencies and blockchain technologies through usability and price stability.
Terraform Labs’ first project was an e-commerce platform called Chai that used blockchain infrastructure to accept fiat payments, convert the payments to stablecoins, and pay vendors in local currency. By the end of 2018, the company had raised $32 million from various investors.
Terra blockchain
Terraform Labs launched the Terra blockchain in 2018. Terra is a decentralized, open source blockchain and payments platform that hosts decentralized applications (dapps) and algorithmic stablecoins, including TerraUSD (UST). In December 2021, Terra was the second largest blockchain used in decentralized finance (DeFi).
LUNA was the native cryptocurrency of the Terra blockchain and TerraUSD is an algorithmic stablecoin. This means that TerraUSD derived its stability through algorithms that linked its value to the supply of LUNA, which differs from most stablecoins that are pegged to a reserve asset like cash or bonds.
Collapse of the Terra network
On May 7, 2022, Curve Whale Watching, a bot that monitors large crypto swaps, tweeted that 85 million TerraUSD were swapped for 84.5 million USDC. Later that month, further significant selloffs of TerraUSD, about $500 million USD, were flagged on the Anchor platform, a decentralized money market built on the Terra blockchain. Prior to the collapse, as much as 75% of TerraUSD was deposited in Anchor.
There is a debate around the cause of the withdrawals, with some reasons including rising interest rates, a malicious attack on the Terra blockchain, or a few large holders withdrawing their coins and selling them due to growing mistrust in the system.
The huge sell-offs de-pegged TerraUSD from its $1 value and started a panic in the market and loss of confidence in the network. Traders began selling their TerraUSD and LUNA for other coins as they feared that the entire Terra network would soon become insolvent.
In March 2022, the Luna Foundation Guard, a non-profit run by Kwon, sold $1 billion of LUNA to buy bitcoin as a reserve to keep the Terra network stable. On May 8, the foundation released $1.5 billion in capital to add to the network’s liquidity to help maintain UST’s peg.
On May 9, Kwon tweeted “steady lads, deploying more capital”, as a means to reassure his following that he was using as much capital as possible to help to bring the UST peg back to $1. The last purchase brought Terra’s reserves to $3 billion dollars, mostly in BTC.
These measures were not enough, and the value of LUNA plunged 96% on May 12 to less than $0.10, with many exchanges halting trading on the coin. The next day its value was $0.
On May 13, Kwon tweeted, “I am heartbroken about the pain my invention has brought on all of you.”
The crash affected hundreds of thousands of individual investors, with South Korea alone estimating that 280,000 of its citizens lost money in the collapse. $28 billion in value was wiped from decentralized applications on the Terra blockchain as investors left the network.
The collapse affected the entire crypto market by accelerating the loss of billions of dollars, and numerous lenders, exchanges, and brokers filed for bankruptcy.
Fallout and subsequent arrest
Kwon and Terraform Labs faced intense questioning from regulatory organizations, investors, and regular traders regarding the riskiness of a coin not backed by a reserve asset, potential of fraud, and suspicion of running a Ponzi scheme.
South Korean LUNA investors affected by the crash filed a class action lawsuit against Terraform Labs in November 2022. The South Korean government pursued Kwon on criminal charges for violations of capital markets law. Lawsuits were filed in the US and Singapore and he has been accused of fraud by his investors.
In September 2022, Interpol issued an international warrant for Kwon’s arrest. As of January 2023, Kwon is still in hiding.
Do Kwon essentials
- Do Kwon is the co-founder and CEO of Terraform Labs, the company that created the LUNA and TerraUSD algorithmic cryptocurrencies.
- The Terra network collapsed in May 2022, erasing $45 billion in market capitalization and contributing to billions in losses in the wider crypto market.
- Kwon faces numerous regulatory and criminal lawsuits in the wake of the collapse.