Korean crypto market in turmoil after $37b wiped out
South Korean entrepreneur Do Kwon was a rising star of the global digital asset market when his company Terraform Labs launched the cryptocurrencies UST and luna three years ago.
His fame peaked last month when the price of luna skyrocketed to over US$119, becoming the first Korean digital coin to crack the top 10 cryptocurrencies with the highest market capitalisation in the world.
He was quickly dubbed the “Korean Elon Musk” for his early success as well as outspoken Twitter comments. Kwon has mocked others as “poor” multiple times for criticising his crypto creations on Twitter.
In July, British economist Frances Coppola tweeted that self-correction mechanisms relying on financial incentives, like Kwon’s tokens, inevitably fail when investors panic and rush for the exit.
Kwon replied: “I don’t debate the poor on Twitter, and sorry I don’t have any change on me for her at the moment.”
The 30-year-old computer engineer-turned-CEO, however, now finds himself under siege from angry investors and market regulators, after over $37 billion vanished from the market caps of two Korean-made cryptocurrencies – terraUSD, also known as UST and its sister token luna – in the course of a week.
According to cryptocurrency data platform CoinGecko, the total market cap of terraUSD and luna hit $3 billion as of 5pm on Monday, down 92.5 per cent from $40 billion on May 9.
TerraUSD, a so-called “stablecoin” designed to maintain a one-to-one peg with the US dollar through a set of algorithms, was trading at $0.14 as of 5pm on Monday.
The two cryptocurrencies work like this: if the price of UST falls below $1, investors can deposit UST at Terraform Labs and receive $1 worth of luna to earn profits of up to 20 per cent in return. The volume of UST distributed is thereby reduced to allow the price to rise back to $1.
Kwon seemed to have unwittingly foreshadowed his cryptocurrencies’ downfall earlier this month, saying that 95 per cent of crypto start-ups are “going to die”.
“There’s also entertainment in watching companies die, too,” he gloated in an interview with chess streamer Alexandra Botez.
The collapse of the two linked cryptocurrencies began just days later on May 9, as the price of UST fell below $1 amid worsening global crypto market sentiment and its struggling flagship, bitcoin.
The tumbling price of UST led to rushed sell-offs of luna, creating a “death spiral” that threatens to wipe out the faith of investors altogether.
Kwon tweeted an apology on Saturday, saying he was “heartbroken about the pain” caused by his invention.
“I’m sure our community will form consensus around the best path forward for itself, and find a way to rise again,” he added, referring to his revival plan posted on terra’s agora website.
He proposed resetting the network ownership of the cryptocurrencies to 1 billion tokens, to be redistributed among UST and luna holders as well as the community pool.
Billy Markus, co-creator of dogecoin, denounced Kwon, tweeting that the Korean CEO should “stop trying to bring in new victims” and leave the crypto industry forever.
Having graduated from Daewon Foreign Language High School, one of the most prestigious schools in South Korea, Kwon received a bachelor’s in computer science at Stanford University in June 2015. He worked as an engineer at Apple and Microsoft. Kwon founded telecommunications company Anyfi in 2016 and served as its CEO for almost two years before launching Terraform Labs in 2018.
Meanwhile, Korean crypto exchanges including Bithumb and Upbit have announced they are delisting luna to prevent further selloffs.
Although Korean financial authorities on Sunday launched emergency checks to monitor the cryptocurrency crash, they have no legal grounds for action other than warning crypto investors.
For the stock market, authorities can legally open investigations on suspicious changes in the share price of a certain company and supervise it. But currently, there are no such laws for the Korean crypto market.
The collapse of UST and luna boosted debate on President Yoon Suk-yeol’s pledge to enact a basic digital assets law so financial authorities could oversee the crypto market and protect investors.
“We still have a long way to go as related parties – such as government ministries and lawmakers at the National Assembly – must talk about what will be included in the law,” an official at the Financial Services Commission said.
Kan Hyeong-woo
The Korean Herald
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