This Week on Crypto Twitter: Do Kwon Takes Heat for UST Failure

By Tim Hakki

Illustration by Mitchell Preffer for Decrypt

It was the market’s sixth consecutive weekly decline, but on Crypto Twitter, the industry’s eyes were pinned on UST’s historic depegging. 

Terra’s dollar-pegged algorithmic stablecoin collapsed, bottoming out at $.13 on Friday, causing a domino effect where the price of LUNA nosedived to virtually zero as people rushed to exit UST by redeeming it for LUNA, which is currently worth a fraction of a cent as UST trades at $.17. 

There are many questions, grievances, proposals, and conspiracy theories as to what exactly happened, but let’s first rewind and recall Terra CEO Do Kwon’s immense hubris.

Last week, he literally said this would never happen.

In March, he threatened to personally crush his rivals in the algorithmic stablecoin market.

But this week, Kwon’s pride, like his projects, came crashing down. Guess the Earth became a bit unstable?

UST began seriously depegging on Monday when it hit an intraday low of 79 cents. Do Kwon reassured followers he was doing everything he could to throw money at the situation.

He also tweeted vague murmurs of a “recovery plan.”

By Wednesday, you’d be forgiven for thinking the Kwon had everything under control.

An hour later, he conceded the defeat in a lengthy thread.

By Friday, he personally hammered the last nail in UST’s coffin.

'Predictable, if you knew the details'

Nic Carter, a blockchain journalist and general partner at the crypto-centred Castle Island Ventures investment firm pointed out the irony of Terra’s collapse. Do Kwon may believe that “decentralized economies deserve decentralized money,” but would a truly decentralized currency let its creator take measures like this?

By Tuesday, Bloomberg crypto journalist Muyao Shen had decided she couldn’t absorb any more Terra conspiracy theories.

FTX co-founder and CEO Sam Bankman-Fried stressed that UST’s depeg was not a big enough surprise to merit any wild conclusions.

TRON CEO Justin Sun, who also recently issued an algorithmic stablecoin similar to Terra's, decided he was going to show his support to Do Kwon, his main inspiration.

It’s worth noting that the similarities between Sun and Kwon go beyond having common stablecoin ideas, or the fact that at one point both CEOs wanted to invest in $10 billion Bitcoin reserves for their stablecoins. Even when it was worth a dollar, virtually the only purpose of holding Terra’s UST was to lock it up in DeFi protocol Anchor, which promised stakers 20% returns. This week, Tron promised returns of up to 30% for staking its own newly issued USDD stablecoin on lending protocol JustLend. 

At the height of LUNA’s collapse, Sun started FUDding his own creation.

But Justin Sun has little reason to fear. While TRX is currently down 23% from last week—a normal dip for a leading project—LUNA is down ... more than 99%.

Binance CEO Changpeng Zhao said he was “very disappointed” with Terra's handling of the situation, and said the Terra team stood “in sharp contrast to Axie Infinity, where the team took accountability, had a plan, and were communicating with us proactively.”

It should be noted that CZ’s own “handling” of the situation involved delisting all LUNA trading pairs before resuming LUNA trades again exclusively against BUSD, Binance’s dollar-pegged stablecoin. Binance also originally had a limit that stopped UST trades if the price dropped below 70 cents, but by Tuesday the exchange had removed this safeguard. Because profits.

Finally, Cardano creator and Ethereum co-founder Charles Hoskinson had a brief and catty exchange with Do Kwon.

'Soros style'?

There were accusations that the crash was the result of foul play by attackers with insider knowledge. Crypto enthusiast @napgener blamed Citadel, accusing the American hedge fund giant of borrowing 100,000 Bitcoins, trading it for UST and then dumping that UST to wipe out the market.

Other variations on this theory implicated asset management giant BlackRock in the plot, along with crypto exchange Gemini. Both BlackRock and Citadel denied the accusations in emails to Forbes. Gemini denied the accusation in a tweet that same day.

At least one blockchain developer said there was never any foul play.

Meanwhile, security researcher Eric Tung memed the LUNAtic coping theories.

That said, blockchain sleuth Onchain Wizard posted a remarkably popular theory of his own, suggesting that the depegging actually may have been an attack.

It’s interesting that he references Soros’s 1992 bet against the Bank of England. Last year, a tweeter called @FreddieRaynolds warned that Terra was susceptible to a “Soros style” attack. At the time, Do Kwon dismissed that thread as “Probably the most retarded thread I’ve read this decade.”

But what most people can agree on is that two huge Terra projects failed spectacularly. And although we know broadly what fueled the death spiral, many questions remain.

Editor's note: This post has been updated to correct "$100,000 in Bitcoin" to "100,000 Bitcoins" in the paragraph that refers to a tweet from @napgener.

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