News hardware The man responsible for one of the biggest crypto crashes is officially out of business
Last May, the crypto ecosystem experienced an unprecedented rebound. As Bitcoin continued to decline, the price of the popular cryptocurrency Terra (LUNA) and its stablecoin (UST) printed a straight line to €0. Four months after the industry-wide incident, Terra founder Do Kwon is facing an arrest warrant in South Korea.
Crypto: what is Terra (LUNA)
In the crypto sector, several projects have emerged to meet the needs of this emerging ecosystem. The Terra project and the cryptocurrency LUNA are among the new projects based on blockchain technology. Founded by Do Kwon, Terra aims to create a decentralized algorithmic “stablecoin”: the UST.
A stablecoin is a cryptocurrency that aims to maintain a stable price like a fiat currency like the dollar or euro. This type of cryptocurrency is very important for the crypto sector. In fact, these stable tokens allow you to protect yourself from the extreme volatility that dominates the market. It is used primarily as an exchange token among 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 follows the price of the dollar because 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 wants to create a stable cryptocurrency without classic fiduciary currencies like the Euro or the dollar. The company thus created UST, a decentralized algorithmic “stablecoin” that is “backed” by the LUNA cryptocurrency.
To stabilize, the UST works through a computer algorithm that balances the amounts through a collateralization system. In short, the stablecoin settles at $1 thanks to community arbitrage. Concretely, if the UST drops to $0.98, then it should be exchanged for $1 in LUNA. On the contrary, if it increased in value to $1.02, it makes sense to create one against $1 of the LUNA cryptocurrency.
However, nothing goes as planned…
What happened to UST and LUNA cryptos?
Last May, the LUNA cryptocurrency began a massive 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 one of 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 both cryptos to be less than a penny.
The effects of these adventures can still be felt 4 months later, especially through the great loss of confidence of some investors in LUNA. Many people who bought LUNA or UST find themselves with 0 €. To bring justice to those who lost their savings in this crypto cataclysm, South Korea has issued an arrest warrant for Terra founder Do Kwon.
The 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. In fact, the person in charge of the project could be the target of an arrest warrant in his country of origin, South Korea.
The move was made by Seoul’s Southern District Financial Crimes Unit, South Korean media outlet Chosun Ilbo reported. Among other things, Do Kwon and his colleagues were accused of not respecting laws specific to the capital markets. According to South Korean justice, the cryptocurrency LUNA and the stable coin UST are financial products, so they should be treated under the control of a financial body.
Currently in Singapore, Do Kwon is currently escaping justice in his country. However, he could 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 soon.
These allegations can cost the founder a lot, and even cause “permanent loss” to both the new LUNA and the old LUNC. Despite the events and the context, the two cryptocurrencies continue to make parabolic speculative movements while the project is stalled and shows many flaws. However, if the charges go to the end, both cryptocurrencies can be removed from most platforms for legal reasons.