The Rise and Fall of the Crypto Titan of Terra

The volatile cryptocurrency sector was hit by one of the biggest busts ever seen by South Korean Do Kwon. A complex mix of algorithms and trader incentives ensured the constant $1 value of TerraUSD, created by Terraform Labs Pte. In May 2022, investor confidence evaporated, leading to the devaluation of the tokens and the loss of almost $60 billion in value. An arrest warrant was issued four months later on charges including breaches of capital-markets law regarding Kwon's whereabouts. Interpol has issued a red notice to him, despite his denial of any wrongdoing. 

‍

After a crypto boom during the pandemic era, TerraUSD and Luna, an algorithmic stablecoin, collapsed in May 2022. The Terraform Labs network was meant to increase in value as TerraUSD became more valuable, rather than being backed by dollars or other assets. With Kwon's Anchor Protocol, TerraUSD grew in popularity with an eye-popping 20% interest rate on deposits. A selloff in virtual coins caused investor confidence to crumble. As soon as TerraUSD's price dropped to 99 US cents on May 7, 2022, its peg began to buck. To restore the link, Terraform Labs dramatically increased Luna's supply, resulting in its price falling. TerraUSD and Luna were practically worthless in a matter of days after a Bitcoin reserve worth a few billion dollars failed to stem the spiral.

‍

Digital tokens are experiencing a $2 trillion value wipeout since November 2021 following TerraUSD's implosion. The sale drew the attention of regulators from the US to Asia, as well as law enforcement agencies in South Korea, where about 280,000 people had purchased Luna. South Korean prosecutors filed complaints alleging fraudulent fundraising and fraud by Kwon. Prosecutors announced on Sept. 14 2022 that Kwon and five others were under arrest on charges of violating capital markets law. On Sept. 17, Singapore said he was no longer in Singapore, where he had been believed to be. Kwon's passport was also revoked by prosecutors on Sept. 26 after Interpol issued a red notice requesting arrest and location. Kwon and Terraform Labs were accused of fraud by the US Securities and Exchange Commission in February this year. An investigation into the company was subsequently launched by Singapore police.

‍

Regulations for stablecoins are likely to follow the Terra fallout in order to better protect buyers. Additionally, decentralized finance, or DeFi, is less popular with investors, which involves trading, borrowing, and lending tokens using a digital ledger like the one Kwon built. The US government has drafted legislation to ban algorithmic stablecoins for two years. Digital assets have cooled in South Korea. Investors have been forced to assess risk more carefully after the Terra losses. TerraUSD was hailed as a "big idea that failed" by billionaire Mike Novogratz, who backed Terraform Labs.

‍