Do Kwon, a trash-talking entrepreneur from South Korea, created a new currency called Luna, which he called his greatest invention.
Terraform Labs, a company founded by Mr. Kwon, raised more than $200 million from investment firms to fund projects built with the currency. A frenzy of excitement swept up day traders and start-up founders, as the total value of Luna ballooned to more than $40 billion.
Mr. Kwon said he didn't debate the poor.
Luna and another currency developed by Mr. Kwon, TerraUSD, collapsed last week. Their meltdowns caused a domino effect on the rest of the market, causing the price of Bitcoin to tank and causing the loss of $300 billion in value. The price of Luna remained close to zero, while TerraUSD continued to slide.
The case study of the downfall of Luna and TerraUSD shows who is left holding the bag when it all comes crashing down. Mr. Kwon's rise was aided by respected financiers who were willing to back highly speculative financial products. Some investors sold their Luna and TerraUSD coins early, reaping substantial profits, while retail traders are struggling with devastating losses.
Paul Veradittakit, an investor at Pantera Capital, said that the hedge fund made a profit of about 100 times its initial investment after selling most of its holdings of Luna.
Around $170 million was turned into by Pantera. A lot of retail investors have lost money. A lot of institutional investors have as well.
Mr. Kwon did not reply. Most of his investors didn't want to comment.
The rise and fall of Luna and TerraUSD were driven by the irresponsible behavior of the institutions backing Mr. Kwon, according to a founder of the platform Tezos. She said that they are trying to console people who are seeing their life savings slip out from underneath them. There is no defense for that.
After working at Microsoft and Apple, Mr. Kwon founded Terraform Labs. Daniel Shin later left the company. His company claimed it was creating a modern financial system that users could use without relying on banks or other middleman.
The Luna currency was marketed by Mr. Shin and Mr. Kwon. Terraform started offering TerraUSD, a stable coin, in 2020 to serve as a reliable means of exchange. Stable coins are pegged to a stable asset like the U.S. dollar and are not supposed to change in value. Stable coins are used by traders to buy and sell riskier assets.
TerraUSD was risky even by the standards of experimental technology. It was not backed by traditional assets like cash or treasuries. Instead, it was derived from a set of rules that linked its value to Luna. Mr. Kwon used the two related coins as the basis for more elaborate borrowing and lending projects.
The experts were skeptical that an algorithm would keep Mr. Kwon's cryptocurrencies stable. Cyrus Younessi, an analyst for the firm, received a white paper about the stablecoin proposal. Mr. Younessi told his boss that the project could go into a death spiral if Luna's price went down.
He said in an interview that this obviously doesn't work.
The naysayers grew louder as Luna caught on. In an interview last year, the founder of Paxos cast doubt on the underlying technology of Luna. Kevin Zhou, a hedge fund manager, predicted that the two currencies would crash.
Venture investment poured in to fund Luna's underlying technology, like services for people to exchange cryptocurrencies or lend TerraUSD. According to PitchBook, Arrington Capital and other investors invested more than $200 million in the last two years.
In April, Luna's price rose to a peak of $116 from less than $1 in early 2021. A group of traders formed around the coin, hailing Mr. Kwon as a cult hero. The chief executive of the company that invested in Terraform Labs got a Luna-themed tattoo.
Mr. Kwon bragged on social media. He named his daughter Luna after his greatest invention.
The cult of personality is the Do Kwon attitude, which sucks people in, according to Brad Nickel, who hosts the coin show.
A nonprofit run by Mr. Kwon sold $1 billion of Luna to investors and used the money to buy a large amount of Bitcoin, a reserve designed to keep the price of TerraUSD stable if the markets ever dipped.
Some of the venture capital firms that backed Mr. Kwon started to have concerns. Ed Roman, a managing director at Hack VC, said that the firm sold its Luna token in December because they felt the market was due for a bigger correction.
Martin Baumann said in an email that his company sold its holdings at about $100 per coin.
Mr. Kwon made a joke about the possibility of a collapse of some ventures. He said he found it to watch companies collapse.
The markets panicked last week because of falling prices and economic trends. The price of Luna dropped to zero. The price of TerraUSD dropped from $1 to 11 cents this week, as predicted by critics. In a matter of days, the token was worthless.
I am very sad about the pain my invention has brought on all of you.
Major investors in Mr. Kwon have lost money. The chief executive of the exchange said his firm had bought $3 million of Luna, which grew to a peak value of $1.6 billion. But it never sold its token. The Luna holdings are worth less than $3,000.
That loss is still a drop in the bucket for a company of that size.
There is a virtual currency called th digital currency called th digital currency is called th digital currency is called th digital currency is called th digital currency is called th digital currency is called th digital currency is called th digital currency is called th digital currency is There is a digital token that can be sent anywhere in the world. This form of digital currency is stored and moved on a payment network.
There is a system for storing data called the Blockchain. A database maintained communally and that reliably stores digital information can be found on a blockchain. Non-currency-based companies and governments are trying to use the same technology that was used to store all of the Bitcoins.
It is possible to pay with corp coin. The first major company to list its shares on a U.S. stock exchange is Coinbase, a platform that allows people and companies to buy and sell various digital currencies.
Web3. The idea of a new kind of internet service that is built using a new kind of token is what some technologists call it.
They are called DAOs. A DAO is an organizational structure that is built with the use of the internet's technology. Investing in start-ups, managing a stable coin or buying NFTs are examples of the common purpose of a DAO.
Mr. Nickel said that most of the V.C.s have analysts who assess these things.
Regular traders have not felt the pain of the collapse. People who had poured their savings into Luna or TerraUSD shared lists of suicide hotlines on a forum.
The start-ups that used the infrastructure developed by Mr. Kwon have been devastated by the crash.
In February, Neel Somani quit his job as a quantitative researcher at Citadel, a hedge fund, to work on a project that connected Luna's underlying blockchain to the other criptosystems.
Mr. Somani joined Terra Hacker House in April to help build projects using Mr. Kwon's technology. Within a few weeks, Mr. Somani secured $10 million in funding for his project. He said he was close to hiring three employees and had 40 customers excited about it.
After Luna and TerraUSD fell, Mr. Somani thought Mr. Kwon and his partners could turn things around. Mr. Somani was relieved that he hadn't yet accepted the funding. He said that he lost around $20,000 of Luna, but that he has made money on other risky stock andcryptocurrencies.
The desks at the hacker house have been emptied over the last week. A Telegram group called Rebuilding Terra has been discussing how to save projects.
Mr. Somani said that the feast and famine mentality was what attracted them to the community.
He is going to present his technology at the hacker house's demo day. He expects less competition for a $50,000 first-place prize because most other groups have left the program.
He said it was in U.S. dollars.
Noyes was involved in research.
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