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Who is Do Kwon? TerraUSD founder alleged to be behind crypto bloodbath

Issuer Luna plunged more than 99 per cent in value on Thursday, May 12, and was trading at below one cent, down from a high of $120 last month

The collapse of Terraform Labs triggered a major meltdown in the crypto market this week, sparking scrutiny and criticism towards CEO Do Kwon, the mastermind behind failing cryptocurrencies TerraUSD and Luna.

Issuer stablecoin Luna plunged more than 99 per cent in value on Thursday, May 12, and was trading at below one cent, down from a high of $120 last month. Kwon, who was deemed responsible for the crash, has now been called "the Elizabeth Holmes of crypto" by a Coindesk columnist, referring to the convicted Theranos founder who defrauded investors for billions. Kwon's reputation was further damaged by his controversial habit of branding his critics as "poor" and claiming in a recent interview that he found "entertainment in watching companies die."

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Who is Do Kwon?

29-year-old Do Kwon is the CEO of Terraform Labs, the firm behind the two technologies stablecoin TerraUSD, which is supposed to trade 1:1 with the US dollar, and governance token Luna, which is supposed to ensure a stable exchange rate. Kwon was able to attract high-profile investors due to his magnetic and confident personality, even roping in the venture capital arm of the major exchange Coinbase. However, after TerraUSD "de-pegged" from the dollar this week amid panicked selling and trading as low as 23 cents, it sent shockwaves across the crypto market, sending the largest cryptocurrency, Bitcoin, to its lowest level since 2020, according to the Daily Mail.

CoinDesk writer David Z Morris lashed out at Kwon in a scathing column on Thursday, comparing the CEO to Holmes as well as the notorious Enron CEO Jeffrey Skilling, who was convicted of felony fraud charges following the company's collapse. "At the very least, he's doing a great impression of a man who really believes in what he's selling," Morris wrote of Kwon. "Despite reams of critical appraisals of the fundamental structure of Luna, Kwon not only stayed the course but over the last 24 hours has angled to find more capital to flush through the holes in his sinking flagship. He's nowhere near acknowledging that he put the holes there when he built it," the columnist added.

The fall of the popular stable coin TerraUSD shook the cryptocurrency markets on Thursday, pushing another major stablecoin Tether below its dollar peg. Stablecoins are digital tokens pegged to the value of traditional and trustworthy assets such as the US dollar. However, TerraUSD -- an algorithmic or "decentralized" stablecoin -- was supposed to hold on to its dollar peg via a complex exchange mechanism that allowed swapping it with another free-floating token.

Richard Usher, head of OTC trading at BCB Group, noted to Reuters that the "collapse of the peg in TerraUSD has had some nasty and predictable spillovers." He said, "We have seen broad liquidation in BTC, ETH, and most ALT coins." As mentioned, stablecoins backed by traditional assets -- like Tether -- were also showing signs of stress on Thursday. "The lack of transparency provided by Tether on the quality of the commercial paper they hold to back the peg made it the obvious next target," Usher explained. "However, Tether is a very different animal to Terra, with a more proven ecosystem and I have far more confidence that when volatility subsides it can regain its peg and stability," he added.

According to CoinMarketCap data, Tether, which is the largest stablecoin by market cap, along with USD Coin and Binance USD, account for nearly 87 per cent of the $169.5 billion stablecoin market. Denis Vinokourov, head of research at Corinthian Digital Asset Management, told Reuters that the large number of centralized cryptocurrency exchanges and decentralized venues, each of which had its own liquidity profile and credit risk, was contributing to price distortions across the market. "The spillover effects into other stablecoins is in part driven by the fragmented nature of the market," Vinokourov said. "This credit risk, especially during the times of tight liquidity conditions and mass deleveraging leads to further price distortions."

Having said that, market analysts are still determining the full impact of TerraUSD's plunge on retail as well as bigger investors. The US Federal Reserve warned in its biannual Financial Stability Report on Tuesday, May 10, that stablecoins are vulnerable to investor runs, considering they are supported by assets that are sensitive to market stress and can lose value or become illiquid during such times.