You are currently viewing “I was wrong”: after the collapse of the cryptocurrency terra, its creator publicly admits his mistake

“I was wrong”: after the collapse of the cryptocurrency terra, its creator publicly admits his mistake

  • Post category:Economy News
  • Reading time:4 mins read

It will have caused investors to lose $40 billion, and more than $500 billion in the cryptocurrency market. Do Kwon, 31, co-founder of TerraUSD, admitted to having “wrong” after a collapse “brutal” of his stablecoin. “I think the best way to heal wounds is to just be honest and admit I was wrong”said the young South Korean, for the first time since the crash of terra, to the specialized media Coinage from Singapore.

It all started well though. In 2018, this Stanford graduate, who worked for Apple and Microsoft, launched his cryptocurrency with one idea in mind: to use the technology of blockchain to develop a more efficient payment system. To do this, he wants to base himself on a so-called stable cryptocurrency, whose price is in principle linked to that of a traditional currency, which guarantees investors a certain durability in the very volatile world of cryptocurrencies.

And the beginnings are promising. Do Kwon manages to raise nearly 40 billion dollars from renowned investors such as Polychain Capital or Arrington XRP. In April 2022, the value of terra reaches its highest. According to CoinMarketCap, it is the fourth stablecoin largest and tenth largest cryptocurrency by market value. But things will start to go downhill. A month later, terra lost more than half of its value in 24 hours, spreading panic in an already feverish crypto-asset market.

Warnings that weren’t enough

Very quickly, the stablecoin and its sister token Luna fall to zero, leading to losses of over $500 billion in the market.

The stability of certain so-called stable cryptocurrencies is not ensured by currency reserves, but by an algorithm that performs arbitrations according to the supply and demand of another cryptocurrency. This is the case of terra, which is backed by the cryptoasset developed by the Luna Foundation Guard. However, this token also collapsed. The domino effect is immediate: investors panic and try to withdraw their money.

Critics had long warned against this system which they considered structurally flawed. In fact, each time a terra token was created, part of the Luna cryptocurrency had to be destroyed in order to maintain its backing to the dollar. And to keep up demand, Do Kwon’s company, Terraform Labs, was offering hefty interest rates. Ponzi scheme, denounce the detractors.

“If demand collapses, then the price will fall to zero”said Hilary Allen, professor of financial regulation at American University, based in the United States, to AFP.

As a result, many small investors lose all their savings.“It is a feature of almost all cryptoassets, and therefore Terra/Luna should serve as a warning to all investors (entering the market in) cryptoassets”notes Hilary Allen.

The South Korean authorities have since opened several criminal investigations into this case. Last month, South Korean prosecutors raided the home of co-founder Daniel Shin on suspicion of illegal activities behind terra’s collapse.

Apologies… but already a new similar project

Authorities also banned key former and current Terraform Labs employees from leaving the country and asked Do Kwon to notify them of his return.

But in his interview with Coinagethe contractor said he had not been contacted by prosecutors and had not decided whether he would return to South Korea to cooperate.“It’s a bit difficult to make this decision, because we have never been in contact with the investigators”he said, adding: “They never accused us of anything.”

A few weeks after the collapse of Terra, he launched Terra 2.0 which nevertheless met the same fate as its predecessor: its value fell very quickly from 11 dollars to 2 dollars. Despite his my culpaDo Kwon says he still believes in his cryptocurrency.“I will always do things around Terra and for the Terra community”continues to say Mr. Kwon. “This is my home and this is where I feel there is the best future.”

But with multiple ongoing investigations, analysts say Do Kwon’s plans for the future are unlikely to materialize. Her name “is now carrying a goodwill negative”analyzes Kelvin Low, professor of law at the National University of Singapore. “His involvement in a project is hurting him rather than helping him.”