December 11, 2023

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Do Kwon: South Korea’s crypto ‘genius’ turned disgraced fugitive

4 min read

SEOUL: As soon as hailed as a genius, South Korean entrepreneur Do Kwon – now going through a number of prison expenses over his failed cryptocurrency – was a brash trade determine whose fame disintegrated into international notoriety.

After months on the run, the 31-year-old, whose full identify is Kwon Do-hyung, was arrested Thursday in Montenegro after being caught making an attempt to catch a flight utilizing faux Costa Rican journey paperwork.

He’s accused of fraud over the dramatic implosion final yr of his firm Terraform Labs, which worn out about $40 billion of traders’ cash and shook international crypto markets.

Instantly after his arrest america hit him with a slew of expenses over what they known as a “multi-billion-dollar crypto asset securities fraud” and South Korea, the place he faces separate expenses, stated it desires to extradite him.

The cryptocurrency he created, an “algorithmic stablecoin” known as Terra, was in actuality a glorified Ponzi scheme, consultants say.

But as just lately as March 2022, Kwon was being described in glowing South Korean media reviews as a “genius” as hundreds of personal traders lined as much as pour money into his firm.

“Kwon and his story are a product of our instances,” Cho Dong-keun, an economics professor emeritus at Myongji College, advised AFP.

“He knew learn how to win the hearts of those that so desperately needed to make a fortune in a single stroke. He additionally knew learn how to exploit their anxiousness and switch it into large income.”

Elite connections

Born in 1991, Kwon attended South Korea’s elite Daewon International Language Excessive Faculty the place, in line with a e-book he wrote about his faculty days, he based an English-language pupil paper and competed in varied English debating championships.

He went on to main in laptop science at Stanford College within the US, and reportedly interned at Apple and Microsoft earlier than returning to Asia to begin his personal enterprise.

In 2018, he co-founded Terraform Labs with Daniel Shin – who’s linked to South Korea’s elite Samsung household by way of his uncle – and developed the TerraUSD and Luna currencies.

He shortly rose to fame, partly because of Shin’s connections, efficiently branding himself as a younger trade luminary.

TerraUSD was marketed as a “stablecoin”, a sort of cryptocurrency which is often pegged to secure belongings such because the US greenback to stop drastic value fluctuations.

In 2019, he featured in Forbes’ 30 beneath 30 Asia record.

Forbes wrote that Kwon’s “price-stable cryptocurrency, or stablecoin, attracted 40 million customers to work with the corporate at launch in January 2018”.

“With the intention of constructing a blockchain-based cost system, Terra has raised $32 million from crypto-giants equivalent to Binance,” it stated.

‘South Korean Elizabeth Holmes’

However consultants had lengthy warned Kwon’s mannequin was essentially flawed, with some outright calling it a Ponzi scheme.

Not like different stablecoins backed by real-world belongings equivalent to money or gold, TerraUSD was algorithmic – pegged solely to sister foreign money Luna, utilizing maths and incentive mechanisms to keep up their peg.

“Algorithmic stablecoins like Terra/Luna had been doomed from the very starting,” Christian Catalini, founding father of MIT’s Cryptoeconomics Lab, advised AFP.

“Issues can work for some time, whereas the ecosystem is rising, however are destined to run right into a demise spiral in some unspecified time in the future.”

A full investigation of Kwon ought to assist make clear what occurred when Terra/Luna collapsed, he stated, including this was crucial to enhance the crypto trade as a complete.

“We have to ensure that unhealthy actors should not in a position to make use of the expertise to design scams and perpetuate different types of fraud or monetary crime,” he stated.

Kwon’s spectacular rise and precipitous fall at the moment are being in comparison with these of convicted American fraudster Elizabeth Holmes, the disgraced founding father of the medical expertise startup Theranos.

Kwon “is rather like Holmes, one other elite who went to Stanford”, the Korea Financial Each day newspaper wrote.

Cory Klippsten, CEO of crypto buying and selling app, made an analogous parallel on Twitter final yr.

Kwon had “main Elizabeth Holmes vibes”, he wrote forward of the collapse. “Creepy ranges of cockiness on show, 99.99% of the time means fraud.”

Kwon slipped out of South Korea earlier than catastrophe struck in Could final yr, and has successfully been in hiding ever since – whilst he claimed on Twitter that he was not “on the run”.

South Korea ultimately revoked his passport, and requested Interpol to position him on the pink discover record.

“A accountable grownup and entrepreneur would have stayed and defined,” professor Cho at Myongji College stated.

“The truth that he tried to keep away from authorities by even utilizing solid passports reveals his character.”

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