Terra Collapse: What We Know After Cryptocurrency Founder’s Indictment

The end of the run for the young founder of the cryptocurrency Terra. Do Kwon – whose full name is Kwon Do-hyung – is due to appear in court in Montenegro this Friday, a day after his arrest at the airport in the capital, Podgorico. The 31-year-old entrepreneur, who is facing eight charges, is accused of stock market fraud that caused investors to lose $40 billion. What are the next steps for him? Why the fall of Terra had caused a wind of panic on the markets? 

What happened?

He was wanted for months. Do Kwon, South Korean founder of the Terra cryptocurrency that collapsed in May 2022 was finally arrested Thursday at Podgorico airport in Montenegro. He is reportedly one of the “most wanted fugitives in the world,” Montenegrin Interior Minister Filip Adzic had said hours after his arrest and that of his CFO, Hon Chang Joon.

The two men were holding “falsified Costa Rican documents” during a check before a flight that was to take them to Dubai, according to the Montenegrin authorities. Inspection of their luggage also revealed falsified Belgian documents. In addition to being charged with falsification of documents, Do Kwon will “be presented on Friday before the High Court of Podgorica where the extradition request will be heard,” said an official of the court.

In South Korea, where he is wanted for violations of financial market rules, the prosecutor’s office had earlier announced that it would “take steps to repatriate” the Terra founder. The South Korean national police have assured that they will work with Montenegrin prosecutors to arrange the extradition of the 31-year-old.

What is he accused of?

The 30-year-old is accused of orchestrating a multi-billion euro stock market fraud. In South Korea, the man is wanted for violating the rules of financial markets. Simply put, Do Kwon made it appear that his cryptocurrency Terra was stable and protected against the vagaries of the markets, which was never the case. Shortly after his arrest, a U.S. federal jury indicted him on no less than eight counts, including securities fraud and online fraud.

The facts date back to last year. In April 2022, Terra’s value had reached its highest level. It was even ranked the fourth largest stablecoin and tenth largest cryptocurrency in terms of market value, according to CoinMarketCap. But it all came crashing down a month later. Terra and its sister token Luna suddenly lost more than half their value… before falling to zero. A wave of panic swept through the cryptocurrency market, ruining many small investors. Some had told their dismay to the Parisian. In total, the losses were estimated at nearly $ 40 billion, or about 37 billion euros.

The South Korean authorities had then opened several criminal investigations. For his part, the co-founder was suspected of having fled South Korea to Singapore since the crash of May 2022. Seoul had then asked Interpol to issue a red notice against him in the 195 member countries of the organization and cancelled his passport. This red notice consists in asking the services in charge of the application of the law of the whole world to locate and to proceed to the arrest of a person while waiting for his extradition, specifies Interpol.

Do Kwon did give his first interview in Singapore in August after the May crash, in which he admitted his wrongdoing. But until now, he has not been found.

Why such a collapse?

In principle, a so-called stable crypto currency, or “stablecoin“, guarantees more stability for investors in this highly volatile world. Its price can be backed by a traditional currency or tangible assets.

This was not the case with Terra, which was linked to another crypto-asset developed by the Luna Foundation Guard, of which Do Kwon was also the founder. A few days before its fall, the Terra protocol had been the target of an attack. “Some people understood the mechanism of the protocol and used the flaws to make a lot of money,” had explained to Le Parisien Adrien Hubert, COO at Smartchain. A large number of TerraUSD were sold, tipping its parity with the dollar.

The result: thousands of individuals lost their savings. “In the end, Kwon did not run his company in accordance with laws and principles. He exploited it for his own personal gain,” said Kim Dae-jong, a professor of business management at Seoul’s Sejong University.

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