No Comments
Finally, after much waiting from the victims, Do Kwon was found guilty of investor fraud in the Southern District of New York court last week, with the collapse of TerraUSD and Terra Luna playing central to the case.
This comes almost a year to the day after the iconic image of Terra Luna’s co-founder Do Kwon in cuffs became a global spectacle.
And for many Terra victims, justice is here – almost.
Do Kwon and Terraform Labs were found guilty of investor fraud in the Southern District of New York last week, with the prosecution’s case contingent on attributing the collapse of TerraUSD stablecoin and Luna token, which erased $40bn in market value, to Kwon.
(WLUNA)
Creating a crypto in good faith that didn’t work out is not illegal. So what did Do Kwon do wrong?
The fraud isn’t creating Terra Luna per se; it was the fake 30% annual percentage yield (APY) given to investors – which was found to have run afoul of laws against Ponzi schemes.
The term ‘Ponzi scheme’ is often misused in crypto, but in this case, the money made from selling Luna was used to pay the APY on Terra (stablecoin).
Gurbir Grewal, the SEC’s Enforcement Director, highlighted the case as a glaring example of the devastating impact non-compliance can have on investors, stressing the need for the crypto market to align with regulatory standards.
Do Kwon: Arrogant About Commercial Espionage
A central figure in the elaborate scheme, Do Kwon co-founded Terraform Labs, the company behind the TerraUSD (UST) stablecoin.
His vision took a nosedive when he began using a platform called Anchor to pay out 30% returns to corporate investors like Celsius, Alameda, and Nexo.
The SEC ruled that Do Kwon had to be aware of the absurd overleverage on his chain – in fact, it was the same leverage that pushed Ethereum to $4,000.
The yields on Anchor were chased by “CeDeFi,” who dumped customer deposits to buy Ether and then stake it. It was either Valhalla or hell. It did not work out.
Figures in the crypto community were ringing the warning bells that Anchor protocol’s 20% annual yields were unsustainable, analysis even revealed the scheme could have been sustainable at a maximum 16% APY. Nobody at Terraform Labs listened.
Absent from the trial, Kwon still finds himself in Montenegro, arrested for using fake travel documents.
Earlier last week, the Montenegro courts overturned the decision to extradite Do Kwon, passing the ruling down to Montenegro’s justice minister. W
ith the U.S. and South Korea seeking his extradition tied to criminal charges, his future hangs in the balance.
The Bottom Line: What’s Next For Terra Luna?
In the context of bull market mania and the Fed’s vacillation, Terra Luna seemed like it could work, and Bitcoin’s decline to $45k at the time was just another pull-back.
The belief was that the dollar would continue to inflate and that volume would only increase, making an algorithmic stablecoin like Terra Luna bulletproof.
But rationally, or, instinctually people were aware of just how much leverage was in the system and where the bottlenecks were.
It only took one or two whales to intentionally throw everything off by sneezing in the general direction of Terra Luna.
If an algorithmic stablecoin like TerraUSD returns, it won’t be controlled by some random guy with shady backers – in the more mature market environment, such a mechanism will likely be institutional.
For now, Do Kwon awaits the decision of the Montenegro justice system. Stay tuned.
EXPLORE: Sam Bankman-Fried Finished: But There’s Still These Crypto Legal Dramas To Watch In 2024
Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
