News hardware The man responsible for one of the biggest crypto crashes is officially on the loose
Last May, the crypto ecosystem experienced a rebound never seen before. As Bitcoin continued to fall, the price of popular cryptocurrency Terra (LUNA) and its stablecoin (UST) printed a straight line all the way to €0. Four months after the industry-wide incident, Terra founder Do Kwon faces an arrest warrant in South Korea.
Crypto: what is Terra (LUNA)
In the crypto sector, several projects are emerging in order to meet a need of this emerging ecosystem. The Terra project and its cryptocurrency LUNA are among the innovative projects based on blockchain technology. Built by Do Kwon, Terra aimed to create a decentralized algorithmic “stablecoin”: the UST.
A stablecoin is a cryptocurrency that aims to maintain a stable price like a fiat currency such as the dollar or the euro. This type of cryptocurrency is very important for the crypto sector. Indeed, these stable tokens allow you to protect yourself from the extreme volatility that reigns on the market. They are used in particular as an exchange token in cryptocurrency peers. For example, if you want to buy Bitcoin or Ethereum the accepted common currency is the stable cryptocurrency Tether, USDT. Tether is a stablecoin that keeps up with the price of the dollar since each of the digital coins is backed by a US dollar, just like gold and the dollar at the time.
In a logic of decentralization, Terra wanted to develop a stable cryptocurrency that does without classic fiduciary currencies such as the Euro or the dollar. The company thus created the UST, a decentralized algorithmic “stablecoin” “backed” by its cryptocurrency LUNA.
To stabilize, the UST operates through a computer algorithm that balances values through a collateralization system. In short, the stablecoin was settling on a value of $1 thanks to community arbitrage. Concretely, if the UST drops to $0.98, then it is worth exchanging it for $1 of LUNA. Conversely, if it increased in value to $1.02, it made sense to generate one against $1 of LUNA cryptocurrency.
However, nothing went as planned…
What happened with the UST and LUNA cryptos?
Last May, the LUNA cryptocurrency began a monumental fall, scaring the entire crypto market. The cryptocurrency founded by Do Kwon went from €80 to €0, leaving many investors on the chopping block. This fall is among the biggest cryptocurrency crashes to date.
As it fell, LUNA dragged its stablecoin, UST, down with it. In short, investors withdrew $40 billion from the protocol, which had the effect of derailing the algorithmic system and thus creating a downward spiral in the price of the UST stablecoin.
This event created a general panic, causing the price of the two cryptos to be worth less than a penny.
The effects of these adventures are still being felt 4 months later, notably through the massive loss of confidence of certain LUNA investors. Several people who bought LUNA or UST find themselves with 0 €. To bring justice to those who lost their savings to this crypto cataclysm, South Korea has issued an arrest warrant for Terra founder Do Kwon.
Arrest warrant issued by South Korea targets Do Kwon
While the project manager was already the subject of a class action lawsuit organized by American investors, Do Kwon made a new enemy. Indeed, the person in charge of the project would be targeted by an arrest warrant in his country of origin, South Korea.
The move was taken by Seoul’s Southern District Financial Crimes Unit, reports South Korean media outlet Chosun Ilbo. Among other things, Do Kwon and his partners are accused of not having respected laws specific to the capital markets. According to the South Korean justice, the cryptocurrency LUNA and its stable coin UST are financial products, therefore they should have been treated under the control of a financial authority.
Currently in Singapore, Do Kwon is currently escaping justice in his country. However, he could soon be part of Interpol’s “red notices”. In this context, the founder and some employees of Terra should be the subject of an international arrest warrant shortly.
These allegations could cost the founder dearly, and even cause the “permanent loss” of the new LUNA and the old LUNC. Despite the events and the context, the two cryptocurrencies continue to create parabolic speculative movements while the project is at a standstill and has demonstrated many flaws. However, if the charges go to the end, the two cryptocurrencies could be removed from most platforms for legal reasons.