Kwon Do-Hyung, also known as Do Kwon, is one of the most infamous personalities in crypto today. Just 12 months ago, Do Known was the toast of crypto. He was proving doubters of his algorithmic stablecoin wrong, and he ran a virtual money printer.
His net worth grew exponentially; it almost felt like he was lady luck’s favorite spouse. But everything Do Kwon had soon fell apart in front of his eyes. Before he knew it, he was on the run from the law and was holing up in the Balkans.
This is how Do Kwon went from the hero of crypto to a fugitive hiding in Serbia.
Do Kwon’s childhood was fairly standard. He was born in South Korea and completed his pre-college education there. Afterward, he moved to the United States to study computer science at Stanford. By 2015, Do Kwon was done with his studies and preparing to enter the job market.
Before Do Kwon left college, he’d worked for three months at Apple and was already building an impressive portfolio. After graduating from Stanford, he continued building his portfolio and got a job as a business partner with Microsoft.
However, Do Kwon didn’t last long working with Microsoft. He only spent three months at that job before he decided to leave and return to South Korea. His goal was to build his own company, and he believed that South Korea was the best place to get that done.
Despite only working for three months each at Microsoft and Apple, Do Kwon’s LinkedIn profile highlights these experiences prominently. Notably, he didn’t work as an engineer at either company, despite his LinkedIn profile mischaracterizing his stay there. However, a recent look at Kwon’s LinkedIn shows that he’s removed his experience at Apple and Microsoft.
According to the Supreme Court Registry Office in Korea, Do Kwon founded his startup, Anify, in September 2015. Anify was a P2P-based communication system. In 2017, for unclear reasons, Do Kwon stepped down as CEO of Anify.
And that would mark the beginning of Do Kwon’s career in blockchain.
Do Kwon Gets into Blockchain
In 2018, Do Kwon founded Terraform Labs Pte. Ltd with Daniel Shin. Before founding Terraform Labs in 2018, Do Kwon had developed a healthy obsession with distributed systems. This obsession started in 2016, and as Kwon researched, he discovered that he couldn’t escape Bitcoin and Ethereum.
This led him to “fall down the crypto rabbit hole” and get involved in the ecosystem. Terraform Labs was merely the fruit of his fascination with blockchain and crypto.
Terraform Labs is the company behind the Terra blockchain. The Terra blockchain is a network that leverages fiat stablecoins to power a payment protocol. This means it’s an ecosystem of dApps where stablecoins and other decentralized finance applications can be built.
The main DeFi product on the Terra blockchain is the TerraUSD or USDT, an algorithmic stablecoin based on Luna, the native token of the Terra blockchain.
Algorithmic stablecoins are coins that remain pegged to a currency through an on-chain algorithm that controls the supply of the token on the market. The problem with these sorts of stablecoins is that their success heavily depends on the mood of the market. If demand for the native tokens the stablecoins are pegged to drop past a certain point, the stablecoin depegs.
Hence, algorithmic stablecoins don’t have a great history of stability since their price also relies on market conditions. Despite this, Do Kwon started marketing his algorithmic stablecoin as the one true DeFi solution for stablecoins.
Since algorithmic stablecoins don’t need traditional finance, they are technically more decentralized. And since they are more decentralized, Do Kwon found it easier to market them to the crypto community.
Rick and Morty
In 2019, Terraform Labs launched its first cryptocurrency. In that time, the company raised about $200 million from investment firms such as Coinbase Ventures and Arrington Capital. The business was booming.
But Do Kwon was about to be friends with lady luck. Just as he built Terraform and developed his stablecoins, the crypto market entered an extraordinary bull run. Prices were rising, and Terra was having the time of its life. There was no better time to launch the UST stablecoin that would be pegged to the dollar.
However, before doing that, Do Kwon had an exciting idea. In late 2020 an interesting stablecoin project called Basis (BAC) cash entered the crypto ecosystem. The project was founded by two anonymous founders named “Rick” and “Morty.” Basis cash was launched on Ethereum, and many industry experts kept a close eye on it. But it eventually failed and could never keep its peg with the US dollar.
Now we know that Do Kwon was one of the people who ran Basis cash. According to Hyungsuk Kang, a former Terrafrim employee, Basis cash was a side project by Do Kwon and some of the early employees at Terraform Labs. Kang says that the entire premise of Basis Cash was to test out the idea of an algorithmic stablecoin.
In the end, the test was a failure. But Do Kwon continued with his plans for a stablecoin for Terraform Labs.
Later in 2020, Do Kwon released Terraform’s algorithmic stablecoin for the dollar, UST.
UST and Luna, the coin it was pegged to, were instant successes. The demand for UST and Luna was off the charts, and it was fairly easy for the stablecoin to remain stable and pegged to the dollar.
In 2021, Terraform Labs launched the Anchor protocol. This protocol allowed users to stake their stablecoins and get ridiculously high annual percentage yields on them. At some point, Terra offered about 20% APY on stablecoin stakes.
This proved immensely popular, and soon Luna was the largest DeFi token by market cap. Terraform wasn’t the only entity growing at this point. Do Kwon also saw his wealth increase by incredible proportions. At one point, he was worth $10 billion and was living the life.
As Luna’s worth grew, so did Do Kwon’s wealth. And as that grew, so did speculation about what would happen to UST if demand for Luna ever dropped. Many industry experts knew that algorithmic stablecoins were subject to the same market influences as any other coin, and they spoke endlessly about how unstable UST was.
But Do Kwon didn’t care. He was so adamant that UST wouldn’t fail that he placed an $11 million bet with his detractors. As Do Kwon’s confidence in Terra grew, so did his fanbase. Holders of UST believed in Luna and Do Kwon and named themselves ‘Lunatics.’
Some even tattooed Luna on their body. They were bullish about Do Kwon and were certain UST would continue to make them money.
But life is a little more complicated than that.
In May 2022, Do Kwon’s worst nightmare came to pass. UST began to depeg from the dollar, and it was right downhill from there. Over the next seven days, Luna lost 99% of its value, and UST was worth 10 cents. That means it had lost 90% of its value.
According to analysts, Luna had been caught in the perfect storm. The falling prices of Bitcoin meant people were withdrawing their UST from the Anchor protocol, and this falling demand caused the stablecoin to depeg. The effects of an initial depeg led to fear, uncertainty, and doubt in the market, leading to even more withdrawals. This made the token depeg further.
The resulting chaos in the market led to a $45 billion wipeout in value. People lost their savings and livelihoods. It suddenly became a very dangerous thing to be Do Kwon.
In September 2022, a South Korean court issued a warrant for Do Kwon’s arrest. Interpol also issued a red notice for him. At this point, Do Kwon was already on the run, and no one knew his whereabouts. Despite still being on the run, he continued posting on Twitter and discussing creating Luna 2.0. Unfortunately for him, even his lunatics weren’t interested. They’d seen enough.
Hiding In Serbia
In December 2022, South Korean authorities announced that Do Kwon was hiding in Serbia. The authorities said Do Kwon first made his way to Dubai before concealing himself in Serbia.
The authorities had discovered that Kwon was in Serbia a month before their announcement and had been tracking him ever since. They also announced that they’d contacted the Serbian authorities and would seek help extraditing Kwon.
Kwon, in his defense, has argued that he doesn’t see the charges the South Korean authorities have brought against him as legitimate. He said they were politically motivated, so he doesn’t respect them.
While Kwon is yet to be captured, it seems like the net of justice is closing down on him quickly. If the South Korean authorities can manage to deal with the Serbian government, Kwon might face justice sooner rather than later.
On the Flipside
- Luna, despite being a failed token, has seen some increase in recent months. However, this increase is likely due to high-risk speculation.
Why You Should Care
Do Kwon is one of the most infamous characters in crypto. His actions have led to the wipeout of billions in customer deposits. He is perhaps an instructive lesson on the dangers of building unsustainable protocols or businesses with customer funds. His story is a sober reminder that when things go wrong in crypto, they can go severely wrong.