The waves of Terra’s implosion may have died down, but the affected entities and investors continue to feel the effects. Founder of the Terra ecosystem, Do Kwon, isn’t having it any different, at least according to a recent interview with Zack Guzman of crypto media startup Coinage. In the first episode of the series aired on Monday, Kwon reflected on the crash, saying he’s “down infinite” following the collapse of Terra.
The first and second episodes of the interview
Zac Guzman met with Kwon in Singapore, where the key man of Terra moved to, days before the Terra downfall. Kwon explained that the migration move was for his family’s safety, but the same has also been said to be part of the suspicious conduct the South Korean developer is accused of.
Shedding light on the sore subject, Kwon noted that the events which transpired in May crashed him as much as any other investor out there, adding that he bet huge and lost. However, he wasn’t forthcoming about the exact figure of his worth at the moment, saying people wouldn’t trust it either way. He only assured that he benefitted nothing from the decimation of UST, and he held his tokens all the way down just as the wife did.
The Anchor didn’t hold
One can argue that Terra’s seemingly unlikely failure started with the launch of Anchor back in March 2021. The automated bank offered lenders a fixed 20% annual yield, which as the test of time would tell, became unsustainable. With Terra slipping to $0.99 at the beginning of this debacle, Anchor depositors became anxious that the protocol could be headed for insolvency and ran for the exit.
Kwon described the rates that Anchor offered Terra users as reasonable – internally, there were targets of “several thousand percent APR with Anchor in the beginning.” He added that such was the case, given that at the time, DeFi was a budding market space.
At this point, it became apparent that action was necessary, and the billions in reserves that Kwon had been shoring up to protect Terra came into play, with the LFG first deploying $1.5 billion on May 8. The funds were increased to $2.5 billion, but even then, traders could foresee the inevitable depletion of the crypto stash Kwon had been dipping. This didn’t inspire much confidence in Terra’s price.
He told Guzman that TFL aimed to raise a further $2 billion by offering investors discounted LUNA. However, with the news leaking before the plan could roll into action, the tokens were massively shorted and slashed value considerably, and this strategy failed terribly.
Man on the inside?
‘Who is the man on the inside?’ is the other question that emerges from these Terra events.
While not mentioning any names, Do Kwon suggested that it’s possible there was an insider individual or party. The Terraforms Labs co-founder said that the insider benefitted heavily from the downfall of UST or, as Coinage puts it, “an anonymous actor, or possibly two, knew exactly how and when to strike against Kwon’s miracle machine.”
This whole situation began with Terraform Labs completing an undisclosed transfer between trading pools. Soon after, untraceable traders took advantage of this brief period of vulnerability, selling nearly $200 million worth of UST. Kwon explained that this huge trade marked the beginning of instability, as more and more people began trading against Curve Protocol’s pools.
The Terra creator, therefore, made a massive claim that since only TFL employees had been aware of this confidential transfer, there was a mole in the organization. He bears the weight that he should have been the one to root out “any weaknesses that could have been presented for a short seller to start to take profit.“
The Chai links
Do Kwon hasn’t always been a man too far away from the spotlight. He’s brushed shoulders with the US SEC, let alone his character on Twitter, whose comments he now says were “cringe.” Far from that, Do Kwon’s involvement with Chai wasn’t the most transparent, as it would come out that the Korean payment app – advertised as a real-world use case of Terra – had ceased its use of UST last year.
The problem is that Kwon used it as a selling point on Terra as late as March this year. In the interview, Kwon says he wasn’t aware of the discontinuation of the relationship between the two, as Terra had become so large that he “just wasn’t paying attention to Chai very much.” Much as Kwon maintains deniability, it’s suspicious that he would be uninformed given his relationship with Daniel Shin, who co-founded Chai with Kwon.
Questions all over
Kwon’s interview comes with concerns over the ability of Zack Guzman to remain neutral while interviewing the UST creator. Guzman had invested in Terra prior to its downfall, and as popular Kwon critic pseudonymous FatManTerra put it, Guzman has always been a Terra shill. There are even more question marks when considering that Coinage’s parent company Trustless Media, had Terraform Labs’ backing as an investor.
But then, on the flip side, some in the community felt that more mainstream media could have likely painted the crypto developer in a worse light than he actually is. Even with the catch, it should have been the road taken as the alternative. Most ended up largely unimpressed with Guzman’s questions, dismissing the interview as it didn’t discuss the pertinent issues.
Taking defensive action
Regarding regulatory action, Kwon said that Korean prosecutors had yet to reach out to him, but he intends to cooperate once that time comes. Recent reports from local news outlets detail that the Terra co-founder has enlisted legal counsel in South Korea.
Do Kwon is said to have submitted at the local prosecutor’s office appointment documents of an attorney. Following investigations into the Terra ecosystem, the firm’s key employees were banned from leaving the country. Last month, the prosecution team conducted a series of raids on several companies linked with Terra.
Terraform Labs remains under investigation by the US Securities Exchange Commission and South Korean Parliament, a possible class-action lawsuit being a possibility for them.
Do Kwon remained humble in the second clip of the interview published by Coinage on August 19, admitting that he is to blame for risk management errors. He described the crash as “a massive failure in risk assessment” and took the blame for overlooking a scenario where the UST stablecoin failed.
“[Terra] didn’t think that the risks that were being posited to UST were material,” Kwon said regarding the failure to disclose UST’s risks to retail investors fully.
The Terraform Labs CEO noted that UST sellers’ actions were expected and thus not to be blamed for the eventual downfall.
“In every trade, there’s collateral damage […] If the peg broke, you can’t blame the trader that took a market opportunity.”
For a man who openly proclaims his love for crypto & Web3 and with an ambition to continue building for a long time, maybe Kwon isn’t ready to disappear into the background just yet.
The post Do Kwon Claims There Could Have Been a Mole In TFL, Reportedly Preparing for Legal Action appeared first on Securities.io.
