Do Kwon Isn’t Done Yet

The memes and classist slurs Terra CEO Do Kwon has slung at critics on Twitter now ring with a hollow irony in the face of severe liquidations and a dollar-based stablecoin now 95 cents below its peg. 

Some saw it coming. In 2018, Cyrus Younessi, an analyst at crypto investment firm Scalar Capital, saw UST’s white paper and immediately warned his boss. The algorithm pegging Kwon’s stablecoin to the greenback, Younessi said, could one day fail and cause a “death spiral” if Terra’s ecosystem was drained of capital too quickly.

Younessi wasn’t alone. A small chorus in the industry warned of Terra’s danger and instability, including Charles Cascarilla, CEO of stablecoin issuer Paxos, which publishes monthly attestations that its Paxos dollar is backed 1:1 with fiat reserves and debt instruments, and Kevin Zhou, co-founder of crypto trading fund Galois Capital.

Kwon, 30, dismissed their concerns with more trash talk.

But now, even Kwon has to concede that Younessi, Cascarilla, and Zhou were right all along. After all, he drove the final nail in UST’s coffin himself.

The hubris 

Hubris is commonly thought of as excessive pride, although that’s not how Aristotle used it: “Hubris consists in doing and saying things that cause shame to the victim ... simply for the pleasure of it. Young men and the rich are hubristic because they think they are better than other people.”

Two millennia later, Aristotle may be a pile of bones, but his words paint a living portrait of Kwon, the CEO who not only believed he was too smart and too popular to fail, but who publicly threatened competitors and confessed his joy in watching others fail.

His own failure has given the industry more than a lesson on how not to create an algorithmic stablecoin: It’s a sobering reminder of the cult of personality that enables people like Donald Trump and El Salvador President Nayib Bukele to silence critics with the force of their ego, not the soundness of their arguments.

Kwon’s promise was up there with MAGA: He was going to make Terra “the largest decentralized money in crypto, period.” As long as he gave his LUNAtics reasons to believe in him, aka profits, he didn’t need to answer to anyone.

Then came May 9, 2022, when UST fell 20 cents below its peg.

The humbling

Terra’s collapse brought to light how little we knew about Kwon beyond his LinkedIn and Twitter profiles. He graduated from Stanford in 2015 after studying computer science, and briefly worked at Microsoft and Apple before forming Terra.

Two days after UST’s plummet began, CoinDesk allegedly doxxed Kwon as the “Rick”—a reference to half of the cartoon duo in “Rick and Morty”—behind another failed algorithmic stablecoin project called Basis Cash (BAC), which slipped its dollar peg for good early last year. BAC is now worth a fraction of a penny.

Still, Kwon appears steadfast. After two days of Twitter silence last week, he finally took the heat for UST’s historic failure. What’s more, he appears to have risen to the task of rebuilding Terra. On Monday, he proposed to fork LUNA’s blockchain and rename the current chain Terra Classic, with the new chain wiped of UST.

Kwon’s proposal was met with near-unanimous disapproval in a preliminary vote on Terra’s community forum. Many would prefer Kwon listen to Changpeng Zhao’s suggestion to buy and burn most of LUNA’s hyperinflated circulating supply of 6.5 trillion tokens. Kwon knows what the community wants, but he’s arguing against it. This time, he’s engaging in critical and constructive conversations with his critics, instead of just dismissing them outright.

He also has very real heat on him. All manner of accusations have been hurled at him by angry investors and restless Twitter users, including allegations of fraud and insider trading. Local Korean sources have said he may have evaded taxes, although this weekend he appeared to dismiss those rumors, saying he’s fully settled up with the Korean government.

The crypto community will be sorting fact from FUD in the weeks—months?—to come, but Kwon isn’t going anywhere, which means that, solvent or not, Terra remains on everyone’s radar. Kwon’s charming hubris and digital fool’s gold may have been an intoxicating vision for his flatterers, but that tap ran dry, and the room has sobered up. At least for now.