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How Crypto Bro says the net caused a $ 40 billion accident

Do Kwon, a grassroots investor from South Korea, called the cryptocurrency he developed in 2018 “my best product.” In a tweet and exclusive interview, he ventured into the world of money laundering, Luna, rallying a group of investors and supporters who proudly called him “The Lunatics.”

Mr. Company. Kwon, Terraform Labs, raised more than $ 200 million from investment companies such as Lightspeed Venture Partners and Galaxy Digital to support the crypto-currency service, even as critics questioned its technology. Luna’s net worth totaled more than $ 40 billion, making it a delight to wipe out day traders and startups, as well as wealthy entrepreneurs.

Mr. Kwon ridiculed his concerns: “I do not argue about the poor.”

But last week, Luna and another of Mr. Cowon developed, TerraUSD, failed miserably. Their meltdown has had a domino effect on other cryptocurrency markets, shifting the value of Bitcoin and causing the loss of $ 300 billion in profits across the crypto economy. This week, the price of Luna is close to zero, while TerraUSD continues to pour.

The fall of Luna and TerraUSD provides a case study on crypto hype and the rest of the person holding the bag when everything falls apart. Distinguished entrepreneurs who are willing to support unparalleled financial products helped raise Mr. Kwon. Some of the entrepreneurs who sold their Luna and TerraUSD coins on time, reaped huge profits, while the retail traders now suffered huge losses.

Pantera Capital, an insurance company invested in Mr. Kwon, earned about 100 times his initial investment, after selling about 80 percent of Luna’s assets last year. Paul Veradittakit, an investor with the company said.

Pantera turned $ 1.7 million into $ 170 million. This recent campaign is a “good luck,” Mr. Veradittakit said. “Many business investors are losing money. I am sure there are a lot of investors in the industry as well. “

Mr. Kwon did not respond. Many of his fellow entrepreneurs refused to answer.

Kathleen Breitman, co-founder of the crypto platform Tezos, said the rise and fall of Luna and TerraUSD was an unfounded act of the company supporting Mr. Kwon. “You’ve seen a lot of people trying to trade in their name to make quick money,” he said. Now, he says, “they are trying to console those who see their safety as disappearing from under them. There is no protection for that.”

Mr. Kwon, a 30-year-old graduate of Stanford University, founded Terraform Labs in 2018 after working as a software engineer at Microsoft and Apple. (He has a partner, Daniel Shin, who later left the company.) His company claims to create a “modern financial system” in which employees can conduct complex business regardless of bank or other affiliated companies.

Mr. Shin and Mr. Kwon began trading Luna currency in 2018. In 2020, Terraform began offering TerraUSD, also known as stablecoin, a type of cryptocurrency designed to serve as a reliable means of exchange. Stablecoins are usually invested in stable currencies such as the US dollar, and should not convert to profits like other crypto currencies. Traders often buy stablecoins and sell other risky assets.

But TerraUSD is dangerous even by the standards of experimental technology. Unlike the popular stabilicoin Tether, it is not supported by money, assets or traditional assets. Instead, it gained the perceived stability through algorithms that linked its profits to Luna. Mr. Kwon uses the two related coins as the basis for borrowing and lending in the awesome world of free money, or DeFi.

From the outset, crypto experts were skeptical that the algorithm would make Mr. Kwon is stable. In 2018, the white paper detailing the stablecoin plan reached the chair of Cyrus Younessi, an analyst for crypto investment firm Scalar Capital. Mr. Younessi sent a letter to his supervisor, explaining that the project could go into a “death trap” of crashes at a price Luna could use to bring stablecoin.

“I felt like, ‘This is stupid,'” he said in an interview. “Obviously this is not working.”

As Luna grabs, the naysayers grow louder. Charles Cascarilla, founder of Paxos, a blockchain company that provides a competitive stablecoin, cast doubt on Luna’s under-tech approach in an interview last year. (Mr. Kwon responded by mocking him on Twitter: “Wtf is Paxos“) Kevin Zhou, insurance manager, repeatedly predicted that both currencies would fall.

But business investment has come to the fore in every possible way to support services built on technology under Luna, such as the services of people exchanging cryptocurrencies or borrowing and lending TerraUSD. Investors including Arrington Capital and Coinbase Ventures raised more than $ 200 million between 2018 and 2021, according to PitchBook, which sponsors the fund.

In April, the price of Luna reached a record high of $ 116 by less than $ 1 in early 2021, creating a generation of crypto millionaires. A community of retailers began around the coin, praising Mr. Kwon as a cult hero. Mike Novogratz, CEO of Galaxy Digital, which has invested in Terraform Labs, expressed its support by acquiring this. Tattoos containing Luna.

Mr. Kwon, who works in South Korea and Singapore, grew up on social media. In April, he announced his name newborn Lunatweeting, “My favorite thing is the name I created.”

Brad Nickel, a supporter of the cryptocurrency podcast, “Mission: DeFi” said, “It’s a human cult – of bombastic, arrogant, Do Kwon attitude – that people like.”

Last year, a company other than Mr. Kwon runs to sell $ 1 billion Luna to investors, using Bitcoin to buy cash deposits – storage designed to stabilize TerraUSD prices if the markets turn up .

At the same time, some of the financial institutions supporting Mr. Kwon began to worry. Hack VC, a venture company focused on crypto, sold its Luna brand in December, partly because “we think the market is due to a huge setback,” said Ed Roman, the company’s general manager. .

Martin Baumann, founder of CMCC Global Marketing Company in Hong Kong, said his company sold its products in March, about $ 100 per coin. “We have received increasing concern,” he said in an email, “both through technology and the processing side.” (CMCC and Hack VC declined to comment on their benefits.)

Even Mr. Kwon referred to the possibility of crypto failure, publicly jokes and some crypto transactions may eventually go under. He said he found it exciting to see the company collapse.

Last week, the price of crypto fell in a difficult economic situation combined to create panic in the market. The price of Luna fell almost to zero. As critics predicted, TerraUSD prices fell individually, down from its $ 1 peg as low as 11 cents this week. Within a few days, Mr. crypto’s residence. Kwon built is really useless.

He said: “I am so sorry for all of you tweeted last week.

Some of the top investors in Mr. Kwon has lost money. Changpeng Zhao, managing director of crypto exchange Binance, which invests in Terraform Labs, said His company bought Luna for $ 3 million, which grew to a maximum value of $ 1.6 billion. But Binance does not sell its brand. Her Luna bond currently stands at less than $ 3,000.

The loss is still just a drop in buckets for big companies like Binance, a US-owned asset with $ 4.5 billion.

“Most of the VCs have auditors they want to investigate these things,” Mr. Nickel said. “They may think they can get money behind the store.”

Much of the pain of the fall has always been felt by customers. At a Reddit forum for Luna publishers, users shared a list of suicides, as those who poured their money on Luna or TerraUSD expressed frustration.

The call has also hurt enthusiasts who are working on startups that use Mr. crypto software. Developed by Kwon.

Neel Somani, 24, quit his job as a statistician at Citadel, an insurance company, in February to work on a project that linked Luna under the blockchain to Ethereum, another crypto system.

In April, Mr. Somani joined Terra Hacker House, a month-long program sponsored by Chicago-based Terraform Labs and Investors, designed to promote projects built by Mr. Kwon. Within a few weeks, Mr. Somani raised $ 10 million in funding for a fundraising project valued by Terranova at $ 65 million. He said he was close to hiring three employees, as well as 40 customers who were happy with the idea.

When Luna and TerraUSD fell, Mr. Somani and his fellow hackers thought Mr. Kwon and his partners can change things. But by Tuesday, Mr. Somani realized he was exhausted, and was relieved he had not yet received the money. He lost about $ 20,000 of Luna, he said, which is not a problem since he made money on other risky products and crypto bets.

Over the past week, hacks at home have been wiped out. The Telegram group called Rebuilding Terra, which has almost 200 members, is working hard to regain service and funding.

Mr. Somani is a sanguine. “For those of us who are building crypto houses, food shortages are really coming, and that is probably what attracted us to the city,” he said.

On Thursday, he plans to unveil his technology no longer available at hacker home show days. Many other team members have dropped out of the program, he said, so he expects less competition for the first prize $ 50,000.

“It’s in US dollars,” he said. “I asked.”

Kirsten Noyes helped with the analysis.

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