Do Kwon Sent Millions to Law Firm Before Terra's Crash
Do you know what happened to Terra, the algorithmic stablecoin that was supposed to be pegged to the US dollar? 🤔 If you are a crypto enthusiast, you probably heard about its spectacular collapse in May 2022, when it lost more than 90% of its value in a matter of hours. 😱 But did you know that Do Kwon, the founder of Terraform Labs, the company behind Terra, had sent millions of dollars to a law firm just before the crash? 😲
In this article, we will tell you more about this shocking revelation that could have serious implications for Kwon's fraud case. We will also explain what Terra was, how it crashed, and what are the consequences for the crypto industry. 🚀
What was Terra and how did it crash?
Terra was a blockchain protocol that aimed to create a family of stablecoins that would be backed by different fiat currencies, such as the US dollar, the euro, or the Korean won. 🌎 The idea was to provide a stable and scalable alternative to volatile cryptocurrencies, and to enable low-cost and fast cross-border payments. 💸
To achieve this, Terra used a dual-token system, where one token, called luna, acted as a collateral for the other token, called terraUSD (or UST for short), which was supposed to maintain a 1:1 parity with the US dollar. 🪙 The mechanism was based on an algorithmic supply adjustment, where luna holders could mint or burn UST depending on the market demand and price. 📈📉
This system worked well for a while, as Terra attracted many users and partners, especially in Asia. 🌏 Luna's price soared from less than $1 in January 2021 to over $60 in May 2022, making it one of the top 10 cryptocurrencies by market cap. 💰 UST also grew rapidly, reaching a supply of over $2 billion and becoming the largest algorithmic stablecoin in the market. 🏆
However, things went south on May 19th, 2022, when a massive market crash hit the crypto space. 😨 Bitcoin dropped by more than 30%, dragging down most other coins with it. 📉 Luna was no exception, as it plunged by more than 50%, from $60 to $28 in a matter of hours. 😵 This triggered a panic sell-off among luna holders, who rushed to swap their luna for UST or other stablecoins. 🏃♂️🏃♀️
The problem was that there was not enough UST or other stablecoins to meet the demand. 😬 The algorithm that was supposed to keep UST pegged to the dollar failed miserably, as it could not mint enough UST fast enough. 😖 As a result, UST's price skyrocketed above $1.5, breaking its peg and creating a positive feedback loop, where more luna holders wanted to sell their luna for UST at a premium. 🚀
This situation exposed the flaws and risks of Terra's design, as it relied on luna's price stability and market liquidity to maintain UST's peg. 🙈 When those factors were disrupted by external shocks, the system collapsed like a house of cards. 🃏 In less than 24 hours, UST lost more than 90% of its value, falling below $0.1 at some point. 😭 Luna also crashed by more than 80%, reaching a low of $11. 😢
What did Do Kwon do before the crash?
You might think that Do Kwon, the founder and CEO of Terraform Labs, was caught off guard by this disaster. 😮 After all, he had been very vocal and confident about Terra's vision and potential, even calling it the “future of money”. 💸 He had also been very active and transparent on social media, engaging with the community and answering questions. 🗣️ He had even claimed that Terra was “the most decentralized stablecoin in existence”, and that it was “immune to regulatory capture”. 🛡️
However, it turns out that Kwon was not as naive or honest as he seemed. 😒 In fact, he had been sending millions of dollars to a law firm just before the crash. 😲 According to a report by KBS News, a South Korean media outlet, Kwon had transferred 9 billion won (about $7 million) to Kim & Chang, the largest law firm in Korea, between April and May 2022. 💰 The first payment was made on April 14th, just five days before the crash. 🕑
Why did Kwon send so much money to a law firm? 🤔 Well, according to the report, he was anticipating legal trouble from the authorities and investors. 😨 He knew that Terra was under investigation by the US Securities and Exchange Commission (SEC) for allegedly violating securities laws by selling unregistered tokens to US investors. 🚫 He also knew that many investors had lost millions of dollars due to Terra's crash, and that they were preparing lawsuits against him and his company. ⚖️
The timing of Kwon's payments to Kim & Chang are also of note. 🕵️ Sending money to legal representatives before the crash occurred suggests Kwon was aware of the event that was about to happen, and pre-emptively expected legal trouble. 😈 Prosecutors believe this will help their fraud case against Kwon, as it shows he had “intent and knowledge” of his wrongdoing. 😠
Kwon's payments to Kim & Chang are also suspicious for another reason. 🧐 According to Singaporean law enforcement, who are also investigating Kwon's activities, the source of the funds he sent to the law firm is “unclear”. 😕 They suspect that Kwon may have used “illegal means” to obtain the money, such as embezzlement, money laundering, or tax evasion. 😱 They are currently trying to trace and seize the funds as part of their probe. 🔎
What are the consequences for the crypto industry?
Kwon's actions have not only damaged his own reputation and credibility, but also those of the crypto industry as a whole. 😔 His case is one of the most prominent examples of how “crypto scams” can harm investors and regulators alike. 😡 His case also shows how some crypto projects can be “overhyped” and “underregulated”, creating unrealistic expectations and exposing users to high risks. 😰
The collapse of Terra has also raised questions about the viability and security of algorithmic stablecoins in general. 🤔 These are stablecoins that do not rely on any collateral or reserve to maintain their peg, but rather on a complex set of rules and incentives that adjust the supply and demand of the tokens. 🧮 While these stablecoins promise more decentralization and scalability than their fiat-backed counterparts, they also face more challenges and vulnerabilities in terms of stability and governance. 🚨
The crypto industry needs to learn from Terra's failure and improve its standards and practices. 🙏 It needs to foster more transparency and accountability among its projects and leaders. 🙌 It needs to adopt more robust and resilient mechanisms to ensure stability and security for its users. 🔐 It needs to cooperate more with regulators and authorities to comply with existing laws and regulations. 🤝 And it needs to educate more investors and users about the potential benefits and risks of crypto assets. 📚
The Bottom Line
Terra was a promising crypto project that aimed to create a global stablecoin ecosystem. 🌐 However, it crashed spectacularly in May 2022, losing more than 90% of its value in a matter of hours in a matter of hours. 😭 The founder of Terra, Do Kwon, had sent millions of dollars to a law firm just before the crash, indicating that he knew what was coming and expected legal trouble. 😲 He is now facing fraud charges from the US and Singapore authorities, who are also investigating the source of his funds. 😨
The Terra case has exposed the flaws and risks of algorithmic stablecoins, and has tarnished the reputation and credibility of the crypto industry. 😔 It has also highlighted the need for more transparency, accountability, security, and education in the crypto space. 🙏 We hope that this article has helped you understand more about this crypto scandal and its implications. 🙌
If you enjoyed this article, please share it with your friends and family. 🙏 And if you want to learn more about crypto and blockchain, please subscribe to our newsletter and follow us on social media. 🚀 We will keep you updated with the latest news and insights from the crypto world. 🌎 Thank you for reading! 😊