News hardware The man responsible for one of the biggest cryptocurrency crashes is officially on the loose
Last May, the cryptocurrency ecosystem experienced a never-before-seen rebound. As Bitcoin continued to fall, the price of the popular cryptocurrency Terra (LUNA) and its stablecoin (UST) printed a straight line down to € 0. Four months after the industry-wide incident, Terra Do Kwon founder faces an arrest warrant in South Korea.
Crypto: what is Earth (LUNA)
In the cryptocurrency sector, several projects are emerging to meet a need for this emerging ecosystem. The Terra project and its cryptocurrency LUNA are among the innovative projects based on blockchain technology. Created by Do Kwon, Terra aimed to create a decentralized algorithmic “stablecoin”: the FSO.
A stablecoin is a cryptocurrency that aims to maintain a stable price like a fiat currency such as the dollar or the euro. This type of cryptocurrency is very important for the cryptocurrency industry. These stable tokens, in fact, allow you to protect yourself from the extreme volatility that reigns on the market. They are used in particular as an exchange token in cryptocurrency peers. For example, if you want to buy Bitcoin or Ethereum, the accepted common currency is the stable cryptocurrency Tether, USDT. Tether is a stablecoin that keeps pace with the dollar price as each of the digital currencies is backed by a US dollar, just like gold and dollar at that time.
In a logic of decentralization, Terra wanted to develop a stable cryptocurrency that does without the classic fiduciary currencies such as the euro or the dollar. The company thus created UST, a decentralized algorithmic “stablecoin” “backed up” by its cryptocurrency LUNA.
To stabilize, the FSO operates through a computer algorithm that balances the values through a collateralisation system. In short, the stablecoin was settling for a $ 1 value thanks to community arbitrage. Specifically, if the FSO drops to $ 0.98, then it is worth trading for $ 1 of LUNA. Conversely, if it increased in value to $ 1.02, it made sense to generate one against $ 1 of LUNA cryptocurrency.
However, nothing went as planned …
What happened with the UST and LUNA cryptocurrencies?
Last May, the LUNA cryptocurrency began a monumental fall, scaring the entire cryptocurrency market. The cryptocurrency founded by Do Kwon went from € 80 to € 0, leaving many investors on the cutting board. This fall is one of the biggest cryptocurrency crashes to date.
As it fell, LUNA dragged its stablecoin, UST, downward. In short, the investors withdrew 40 billion dollars from the protocol, which had the effect of derailing the algorithmic system and thus creating a downward spiral in the price of the UST stablecoin.
This event created a general panic, causing the price of the two cryptocurrencies to be worth less than a cent.
The effects of these adventures are still being felt 4 months later, particularly due to the massive loss of confidence of some LUNA investors. Several people who have bought LUNA or UST find themselves with 0 €. To do justice to those who lost their savings due to this cryptographic cataclysm, South Korea has issued an arrest warrant for the founder of Terra Do Kwon.
South Korea’s arrest warrant targets Do Kwon
While the project manager was already the subject of a class action organized by American investors, Do Kwon has made a new enemy. The project manager, in fact, would be targeted by an arrest warrant in his country of origin, South Korea.
The move was made by the Seoul South District Financial Crimes Unit, South Korean media Chosun Ilbo reports. Incidentally, Do Kwon and his associates are accused of failing to abide by the specific laws of capital markets. According to South Korean justice, the cryptocurrency LUNA and its stable currency UST are financial products, so they should have been treated under the control of a financial authority.
Currently in Singapore, Do Kwon is escaping justice in his country. However, he may soon be part of Interpol’s “red notices”. In this context, the founder and some employees of Terra are expected to be the subject of an international arrest warrant shortly.
These allegations could cost the founder dearly and even cause the “permanent loss” of the new LUNAs and the old LUNC. Despite the events and the context, the two cryptocurrencies continue to create parabolic speculative movements as the project stands still and has shown many flaws. However, should the charges come to an end, the two cryptocurrencies could be removed from most platforms for legal reasons.