Collapsed TerraUSD not currency founder Kwon Do’s first stablecoin failure, colleagues claim

The developer of the cryptocurrency, which saw its value plummet last week leaving investors billions of dollars out of pocket, had tried and failed to create a similar product in 2021.

The cryptocurrency developer at the centre of the TerraUSD stablecoin collapse, Kwon Do, presided over the demise of a separate, earlier algorithmic stablecoin.

TerraUSD, or UST, used a complex string of smart contracts and code to peg its value to the US dollar – when, last week, that came unstuck, its value dropped 99.99 per cent.

What was meant to be an island of stability in a volatile world of cryptocurrencies suddenly became one of its biggest failures, with some estimating almost $US45bn ($65bn) was wiped from investors as the currency and its associated token dropped in value.

Mr Kwon, the chief executive of Terraform Labs, which developed the currency, used a pseudonym to promote another algorithmic stablecoin, Basis Cash, which crashed in 2021, CoinDesk reported. Basis Cash was also pegged to the US dollar with the help of two other crypto assets Basis Bonds and Basis Shares. The project was launched in November 2020; however Basis Cash sank below $US1 in early 2021 and now trades below US1c.

The digital assets publication, citing a former engineer at Terraforms, Hyungsuk Kang, reported Basis Cash was a side project of some of Terra’s early creators including Kwon.

It served as a “test run” for Terra-Luna but failed. Kwon used the pseudonym Rick Sanchez publicly, taken from the US animated TV show Rick and Morty.

Mr Kwon, a prolific poster on Twitter, went silent after TerraUSD went into free fall.

Exchanges halted trading in TerraUSD citing their poor liquidity, and threw investors‘ lives into chaos. Some investors hold a forlorn hope of a revival.

After first proposing plans to revive Terra-Luna, Mr Kwon then acknowledged their demise.

“The holders of Luna have so severely been liquidated and diluted that we will lack the ecosystem to build back up from the ashes,” he said in a blogpost. “While a decentralised economy does need decentralised money, UST has lost too much trust with its users to play the role.”

Mr Kwon now wants to preserve the community for another venture with some nominal redistribution of coins. “I am heartbroken about the pain my invention has brought on all of you,” he wrote in a post on Twitter. “What we should look to preserve now is the community and developers that make Terra’s blockspace valuable.”

Mr Kwon and his associates face potential physical danger from those who have lost large sums. On Friday, his wife sought police protection after an unidentified individual was seen at their home in South Korea.

Mr Kwon’s belligerence and insults to those criticising him hasn’t helped.

In November 2021, one Twitter user wrote that “a wealthy attacker could not only break (TerraUSD) but profit heavily doing it with a Soros style Black Wednesday attack”.

It eerily foretold what would happen six month later.

At the time Kwon replied: “Probably the most retarded thread I’ve read this decade.”

Probably the most retarded thread ive read this decade.

Silence is a perfectly acceptable option if stupid.

Billionaires in my following, go ahead, see what happens https://t.co/wtt9OhX4kg

— Do Kwon 🌕 (@stablekwon) November 28, 2021

Caroline Bowler, the chief executive of one of the country’s largest cryptocurrency exchanges, BTC Markets, told The Weekend Australian that the collapse of coin was similar to the 1992 crisis, where short selling of the British pound saw it plunge in value.

“What’s happened over the course of the last 72 hours is something similar where people external to the project have gathered together to find a vulnerability in the project and brought about its collapse to their own profits,” Ms Bowler said.

Many platforms – including the popular Swyftx in Australia – have responded to the collapse of UST by halting trade. On Saturday, Swyftx told customers that UST and the related Luna token did not meet its listing criteria.

“Therefore, (we) have now enabled the ability for customers to remove Luna or UST from our platform either via withdrawing your assets elsewhere or selling at the current market price,” the platform said in a statement. “Buys and deposits of these tokens are currently disabled.”

Dimitrios Salampasis, a researcher at Swinburne University specialising in financial technology, said the value of cryptocurrency values could herald their eventual end as speculative currencies – and speed up regulation.

“Bitcoin will definitely remain as an investable asset because of its scarcity, and Ethereum will remain because it‘s a main platform for decentralised finance,” Dr Salampasis said.

“But if the other tokens won’t find new utilities and new ways of utilisation and remain simply as a currency. I don’t really see what the future is.”