Luna Terra USD: How a Trash-Talking Crypto Bro Cracked 40 Billion

Du Kwon, a trash-talking entrepreneur from South Korea, called the cryptocurrency he created in 2018 “my biggest discovery.” In countless tweets and interviews, he has announced the world-changing potential of the currency Luna, bringing together a group of investors and supporters whom he proudly refers to as “Lunatics”.

Kwon’s company has raised more than $ 200 million from investment firms such as Terraform Labs, Lightspeed Venture Partners and Galaxy Digital to finance the currency-based crypto project, and even critics have questioned its technical basis. The total value of the lunar has exceeded 40 40 billion, creating an excitement that has shaken day traders and startup founders as well as wealthy investors.

Cowan blew the whistle with a sneer: “I don’t argue with the poor.”



But last week, another currency, the TerraUSD, created by Luna and Kwon, suffered a spectacular fall. Their collapse has a domino effect on the rest of the cryptocurrency market, tanking the value of bitcoin and accelerating the $ 300 billion loss in the crypto economy. This week, lunar prices were close to zero, while TerraUSD continued to slide.

The fall of Luna and TerraUSD offers a case study of crypto hype and who holds the bag when it all breaks down. Kwon’s rise was enabled by reputable financiers who were willing to support highly speculative financial products. Some of these investors sell their Luna and TERUSD coins early, making substantial profits, while retailers are now facing catastrophic losses.

Pantera Capital, a hedge fund that has invested in Kwon’s efforts, has gained nearly 100 times its initial investment since selling about 80% of its lunar holdings over the past year, said Paul Veradittakit, an investor in the firm.

Pantera has turned from 1.7 million to about $ 170 million. The latest crash is “unfortunate,” said Veradittakit. “A lot of retail investors have lost money. I’m sure there are a lot of institutional investors as well.”

Kwon did not reply to a message. Most of his other investors declined to comment.

Kathleen Britman, founder of the crypto platform Tejos, says the rise and fall of Luna and TerraUSD has been driven by the irresponsible behavior of organizations that support Cowan. “You see a bunch of people trying to do business with their reputation to make quick money,” he said. Now, he adds, “they’re trying to comfort people who see their life savings coming out of their bottom. There’s no defense for that.”

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 had a partner, Daniel Shin, who later left the company.) His company claims that it is creating a “modern financial system” where users can handle complex transactions without relying on banks or other intermediaries.

Shin and Kwon started marketing the Luna currency in 2018. In 2020, Terraform began offering TerraUSD, also known as a stablecoin, a type of cryptocurrency designed to serve as a reliable means of exchange. Stablecoins are usually associated with a stable asset like the US dollar and are not supposed to fluctuate in price like other cryptocurrencies. Traders often use stablecoins to buy and sell other risky assets.

But TerraUSD was also at risk by the standards of experimental crypto technology. Unlike the popular stablecoin teether, it was not supported by cash, treasury or other traditional assets. Instead, it derives its supposed stability from algorithms that associate its value with lunar. Kwon used two related currencies as the basis for decentralized financing, or DeFi’s more extensive borrowing and lending scheme in the obscure world.

From the beginning, crypto experts were skeptical that an algorithm would keep Kwon’s twin cryptocurrencies stable. In 2018, a white paper outlining the Stablecoin proposal reached the desk of Cyrus UNC, an analyst at crypto investment firm Scaler Capital. UNESC sent a note to its boss, explaining that the project could enter a “death spiral” where a lunar price crash would bring down the stablecoin with it.

“I was, ‘It’s crazy,'” he said in an interview. “It obviously doesn’t work.”

As soon as Luna was caught, the vandals grew louder and louder. Charles Cascarilla, a founder of Paxos, a blockchain company that offers a competitive stablecoin, expressed doubts about Lunar’s underlying technology in an interview last year. Kevin Zhou, a hedge fund manager, repeatedly predicted that the two currencies would collapse.

But venture investments have somehow come to fund projects built on Lunar’s underlying technology, such as cryptocurrency exchange or TerraUSD borrowing services for people. Investors, including Arrington Capital and Coinbase Ventures, have invested more than $ 200 million between 2018 and 2021, according to Pitchbook, which tracks funding.

In April, Lunar prices peaked at থেকে 116, down from $ 1 in early 2021, creating a generation of crypto millionaires. A community of retailers formed around the coin, congratulating Cowan as a hero of a religion. Mike Novogratz, CEO of Galaxy Digital, an investor in Terraform Labs, has announced his support for Luna-themed tattoos.

Kwon, who works outside of South Korea and Singapore, is buzzing on social media. In April, he announced that he had named his newborn daughter Luna, tweeting, “My biggest discovery has been named My Favorite Creation.”

Brad Nickel, host of the cryptocurrency podcast “Mission: Definition”, says, “It’s the culture of personality – the bomastick, the arrogant, do-it-yourself attitude – that sucks people up.”

Earlier this year, a non-profit company led by Kwon also sold $ 1 billion to investors, using the proceeds to buy Bitcoin stocks – a reserve tera USD designed to keep prices stable if the market ever falls.

At the same time, concerns were raised by some venture capital firms that supported Kaun. Hack VC, an enterprise focused on crypto, sold its Luna token in December, partly because “we felt the market was for a bigger pullback,” said Ed Roman, a managing director of the firm.

Martin Bowman, founder of CMCC Global, a Hong Kong-based venture firm, said his company sold its holdings in March, at about $ 100 per coin. “We’ve got growing concerns,” he said in an email, “both technically as well as regulatory.” (CMCC and Hack VC declined to comment on their profits.)

Kwon even hinted at the possibility of a crypto collapse, publicly joking that some crypto ventures could eventually sink. He said he found it “entertaining” to see companies collapse.

Over the past week, the fall in crypto prices and challenging economic trends have combined to create panic in the market. Lunar prices have come down to almost zero. As predicted by critics, the price of TerraUSD has dropped from its $ 1 peg to 11 cents this week. Within a few days, the crypto ecosystem that Kwon had created was basically worthless.

He tweeted last week, “I’m heartbroken by the pain my invention has brought to all of you.”

Some of Kwon’s major investors have lost money. Champeng Zhao, CEO of Crypto Exchange Binance, an investor in Teraform Labs, said his firm bought $ 3 million worth of Luna, valued at $ 1.6 billion. But Binance did not sell its tokens. Its Luna Holdings is currently valued at less than $ 3,000.

That loss is still just a drop in the bucket for a company as big as Binance, which is worth US হাত 4.5 billion.

“Most VCs need analysts to evaluate these things,” Nickel said. “They may have thought the retailer could make money.”

Most of the pain of the fall has been felt by regular traders instead. In a Reddit forum for Luna missionaries, users shared a list of suicide hotlines because those who poured their savings into Luna or Terra USD expressed frustration.

The crash also destroyed enthusiasts who were building startups that used the crypto infrastructure created by Kwon.

Neil Somani, 24, quit her job as a quantitative researcher

A hedge fund to work on a project in February that linked Lunar’s underlying blockchain to Ethereum, another crypto system.

In April, Somani joined Terra Hacker House, a month-long program at the Chicago office sponsored by Terraform Labs and its investors, designed to incubate projects built on Kwon’s technology. Within weeks, Somani pledged $ 10 million for venture funding for his project, Terrano, valued at $ 65 million. He was close to hiring three employees, he said, and 40 customers were excited about the idea.

After Luna and TerraUsD crashed, Somani and her fellow hackers initially thought Kwon and his partners could turn everything around. But by last Tuesday, Somani had realized that it was over and was relieved that he had not yet received the funds. He lost about ুন 20,000 to Lunar, which he said didn’t bother him, as he made money on other risky stocks and crypto bets.

Last week, Hacker House desks were emptied. A telegram group called Rebuilding Terra, with about 200 members, is actively discussing how projects and funds can be recovered.

Somani Hall

. “For those of us who are crypto creators, the feast and famine mentality really comes naturally, and that’s probably what attracted us to the community,” he said.

On Thursday, he plans to pitch his now-obsolete technology at Hacker House Demo Day. He said most other groups have dropped out of the program, so he expects less competition for the $ 50,000 first place prize.

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

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