Do Kwon, 32, was considered South Korea's "golden boy" just a year ago. In 2018, he co-founded the blockchain company Terraform Labs with his partners, developed the cryptocurrency TerraUSD and its token Luna, known as the "stable currency", and raised hundreds of millions of dollars in funds. However, during the market turmoil last May, Luna fell from a peak of $100 to less than $1, causing global investors to lose approximately $40 billion. Do Kwon then became a wanted subject in South Korea, and after 11 months of "disappearance", he was arrested in Montenegro in the Balkans on March 23 this year, when he tried to fly to Dubai using a forged passport. At present, South Korea and the United States have filed fraud charges against him and applied for extradition to Montenegro. The biggest suspense is in which country he will be tried.
And Do Kwon is just one of many stories in the "coin circle". The bankruptcy declaration of the U.S.-based cryptocurrency trading platform FTX and its related institution Alameda Research once again reminded global regulators and investors of the potential huge risks in the cryptocurrency market. However, these hard lessons don’t seem to have diminished the average investor’s enthusiasm for cryptocurrencies.
"Do Kwon's experience is a reflection of this era." Zhao Donggen (transliteration), honorary professor of economics at Dongseong University in South Korea, said in an interview with AFP. "He knew how to attract people who were eager to get rich overnight and how to exploit their insecurities to make huge profits."
Before the Terra\Luna controversy, Do Kwon had already created a personal image that matched the post-90s elite image that many young people in South Korea aspire to. He was born in 1991 and attended the famous Daewon Foreign Language High School in South Korea during his high school years. This school is famous for nurturing many Ivy League "stars of tomorrow". In Do Kwon's autobiography, he mentioned that he founded an English student newspaper in high school and participated in many English debate competitions. He subsequently studied in the Department of Computer Science at Stanford University in the United States. After graduation, he worked as an intern at world-renowned technology companies such as Apple and Microsoft. Finally, he returned to Asia and began his entrepreneurial journey.
In 2018, he teamed up with Shin Hyun Sung (transliteration, also known as Daniel Shin) to establish Terraform Labs. Shin has close ties with South Korea's economic giant Samsung Group and is well-known in the investment field. Do Kwon also quickly emerged in South Korea. TerraUSD released by Terraform Labs claims to be a "stable currency" pegged to the U.S. dollar, which can avoid huge market fluctuations. TerraUSD and Luna quickly became popular, and their trading platforms also received attention and capital injections from many top investors.
However, according to subsequent investigations by the South Korean investigative agency, Kwon, Shin and seven other Terraform Labs executives were accused of "illegal fundraising" of 414.5 billion won (approximately US$314.2 million), and Do Kwon, as CEO, allegedly controlled 414.5 billion won (approximately US$314.2 million). 91.4 billion won (approximately US$69 million).
Korea Broadcasting Corporation mentioned in a report on April 9 that South Korean prosecutors have frozen the Korean assets of Daniel Shin and other Terraform Labs executives, including real estate and luxury cars, accusing them of illegally earning 154 billion through the Terra\Luna project. South Korean won (approximately $116.7 million). However, Do Kwon had converted most of his assets into Bitcoin and transferred them to an overseas cryptocurrency exchange before his arrest, so it is currently almost impossible to seize his assets in South Korea.
In fact, when Do Kwon was brilliant, some people also expressed doubts about his "success".
Before Terra\Luna’s troubles, Corey Kripsten, CEO of cryptocurrency trading website Swan.com, commented on social platforms that Do Kwon reminded people of Elizabeth Holmes. Holmes once attracted much attention, claiming to have developed a "disruptive" blood testing device and receiving support from many political and business figures, but it was later exposed as a fraud. "Those who are overconfident are usually hiding a fraud," Kripsten said.
"Korea Economic Daily" also commented that Do Kwon, like Holmes, is an outstanding alumni of Stanford.
Some people criticized Do Kwon's subsequent actions as confirming this suspicion. Before the incident in May last year, Do Kwon had quietly left South Korea. Therefore, when the victimized investor filed a lawsuit in court, the South Korean police discovered that he was missing, subsequently issued a wanted order and requested Interpol to assist in the pursuit. Despite this, Do Kwon occasionally appeared online and gave interviews, claiming that he was not "absconding", but when he was arrested in Montenegro, he was found to be in possession of multiple forged identity documents.
Christian Catalini, chief researcher at the "Blockchain Economic Research Center" of the Provincial Polytechnic, told AFP that the collapse of Terra\Luna was not an accident, and that there were obvious weaknesses in its core design. According to him, traditional stablecoins are usually based on physical assets, such as cash or gold, as collateral. TerraUSD is an "algorithm-driven stablecoin" that is linked to the volatile Luna currency and relies on algorithms and incentive systems to maintain value stability. "In the early stages of rapid growth of the ecosystem, this model may be able to maintain for a period of time. But eventually it will face serious risks." Catalini explained.
From 2021 to early 2022, with the rise of the cryptocurrency investment craze, the value of Luna Coin soared, with the market value once exceeding the $40 billion mark. At the same time, Do Kwon's influence has also increased, and he is extremely active on social platforms such as Twitter. He was arrogant and scornful of any criticism, even openly declaring "I don't argue with poor people." His fans call themselves "crazy".
However, by May 2022, Luna coin plummeted by 99%, causing TerraUSD to collapse. Many investors suffered heavy losses, which also triggered a series of chain reactions throughout the industry, even causing the FTX trading platform to declare bankruptcy. Related to this, there are Singapore’s Three Arrows Capital and the United States’ Traveler Digital Company.
The U.S. Securities and Exchange Commission filed charges against Do Kwon and his company in February this year for alleged unregistered securities sales and accused him of masterminding a multi-billion dollar cryptocurrency fraud.
In South Korea, Do Kwon and his company were prosecuted for electronic fraud and tax evasion. The specific details of how Do Kwon manipulated this scam and made illegal profits require further investigation and trial.
After Do Kwon was arrested, the U.S. District Court in New York filed eight criminal charges against him, including securities fraud, electronic fraud and commodities fraud. U.S. authorities accused Do Kwon of making misleading publicity about the Terra blockchain in various media, including social media, deceiving investors and prompting them to purchase TerraUSD and Luna coins.
U.S. authorities also accused Do Kwon of conspiring with a U.S. cryptocurrency trading platform to manipulate the market, especially "tampering" with the market price of TerraUSD. In May 2021, he promised to modify certain loan terms to "compensate" for the losses caused by this behavior.
The Manhattan District Attorney's Office in New York, which is responsible for the Do Kwon case, also oversees fraud charges against FTX founder Sam Bankman-Fried. The latter was transferred to the United States via the Bahamas and was temporarily freed after paying a $250 million bond. District Attorney Damian Williams pointed out that cryptocurrency companies may register overseas to circumvent the law, but they cannot escape justice. "Web3 is not an area that cannot be regulated by law. Fraud will always be fraud, whether in blockchain or Wall Street."
The so-called Web3 or Web 3.0 represents the third generation of the Internet. It is based on blockchain technology and strives to give users full control and income from their digital assets, no longer relying on the control of large technology companies. Based on the same blockchain technology, cryptocurrency is different from traditional currencies issued by central banks of various countries. It is regarded as a transaction method compatible with the Web3 economic system and is loved by a new generation of Western investors. While the average investor may not fully understand how cryptocurrencies work, that hasn’t stopped them from chasing this new type of financial product.
According to data from the Financial Commission of South Korea’s financial regulatory agency last year, about 23% of young people aged 20 to 39 in South Korea hold cryptocurrency, which means that nearly one-fifth of South Korean young people are investing in cryptocurrency. In the first quarter of last year, South Korea's four major cryptocurrency trading platforms added 2.5 million new accounts, of which 33% of users were between 20 and 29 years old, and 31% were between 30 and 39 years old.
Many young people are eager to get rich quickly through cryptocurrency investment in order to get rid of financial difficulties and achieve an improvement in social status. However, like any emerging industry, there are huge interests at stake and regulations that are not yet complete, leading to many problems. Due to events such as the collapse of FTX, South Korea began drafting the "Digital Asset Basic Law" last year, hoping to strengthen supervision of the country's cryptocurrency market.
Once investors are drawn into this field, most ordinary investors may face huge losses in the event of a crisis. As for leading figures like Bankman-Fried and Do Kwon, it will take a lot of public resources to hold them accountable and pay the corresponding price. After Luna's decline, Do Kwon remained confident about the future, planning to launch a new cryptocurrency and threatening to make it "one of the most valuable cryptocurrencies."
As time goes by, controversies related to virtual assets continue to increase, such as the "virtual real estate speculation" that quickly fell after becoming popular, attracting many large companies and celebrities to participate and suffer huge losses. Although history has repeatedly taught lessons, there are still a large number of people with dreams of getting rich quickly who continue to enter this field, and the next "Do Kwon" may be quietly emerging.
