Do Kwon: The Man Behind a $45 Billion Crypto Implosion

The outspoken, sometimes controversial South Korean cryptocurrency developer Kwon Do-hyung, better known as Do Kwon, has denied media reports that South Korean prosecutors have frozen $67 million of Kwon’s bitcoin assets held in the KuCoin and OKX exchanges. There is currently an arrest warrant for Kwon for allegedly violating capital market rules after a nearly $45 billion cryptocurrency crash earlier this year.

Earlier this week, prosecutors in South Korea claimed to have frozen $27.4 million of bitcoin held in a KuCoin wallet and an additional $39.6 million in OKX. They claimed the bitcoin assets belonged to Kwon. However, the 31-year-old denied the claims and poked fun at them in a Twitter post to his one million followers.

“I don’t get the motivation behind spreading this falsehood – muscle flexing? But to what end? Once again, I don’t even use Kucoin and OkEx, have no time to trade, mo funds have been frozen. I don’t know whose funds they’ve frozen, but good for them, hope they use it for good.”

Kwon Set to Appear on Interpol’s Red List

South Korean prosecutors launched an international manhunt for Kwon following the $45 billion collapse of the luna and terraUSD tokens earlier this year. The Seoul Southern District Prosecutors’ Office is applying to place Kwon on Interpol’s red list, in addition to revoking his passport if Kwon does not hand himself in and cooperate with the investigations into his company’s high-profile collapse. The prosecutors claim Kwon and his company’s key personnel left South Korea as their cryptocurrency tokens were obliterated into nothing. Again, Kwon denied such claims on Twitter.

“I am not on the run or anything similar – for any government agency that has shown interest to communicate, we are in full cooperation, and we don’t have anything to hide.”

Another Kwon tweet claims he continues to write code in his living room and that he takes frequent walks and trips to the mall. The truth likely lies between these two extremes.

Why Is Kwon a Wanted Man?

Kwon is the co-creator of Terra, a blockchain used for payments. One of its main features was the TerraUSD (UST), a so-called stablecoin that was meant to maintain a 1:1 peg with the US Dollar through a relationship with the luna cryptocurrency set by complex algorithms. The idea was that if terra’s value fell below $1, investors were incentivized to purchase the stablecoin before redeeming it for $1 worth of freshly minted luna tokens. The model is known in cryptocurrency circles as “burn and mint equilibrium.” In addition, clients could lend their terra for a near 20% yield.

Critics of the model raised concerns that Kwon’s stablecoin could act as a Ponzi scheme, claims Kwon denied.

On May 9, 2022, terra’s $1 value began slipping and ended the day worth around $0.90. By the end of the week, terra was only worth $0.15 despite Kwon’s claims it would always be worth $1. All faith in the model evaporated, and both terra and luna became virtually worthless despite enjoying an all-time high of $119.51. In all, approximately $45 billion was wiped out over the course of the week. The collapse of Kwon’s system results in fear and panic across other cryptocurrencies, including bitcoin.

More than 80 investors, each of whom lost vast sums of money investing in Kwon’s tokens, launched a class action lawsuit against the cryptocurrency creator. South Korean prosecutors want to punish Kwon and his associated, but the head of the Cryptocurrency Research Center at Korea University, Kim Hyoung-joong, does not think any case would stand up in court.

“Prosecutors are keen to punish him as an example, but it is a different matter if he will actually be found guilty in court. There has been no legal precedent in South Korea where crypto investments were seen as an investment contract, as claimed by prosecutors.”