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The tokens were designed as counterweights in a system of supply and demand, which would in theory maintain the stablecoin Terra’s peg to the value of the U.S. dollar. (Terra and Luna could be exchanged for one another at a 1-to-1 ratio; if the value of Terra ever fell too low, the system’s algorithms would convert Terra to Luna, diminishing its supply and thus boosting its value—and vice versa.) The system collapsed when consumers began to run from crypto altogether, dumping millions of dollars worth of the coins in May. Terra, which even risk-averse consumers had bought into believing it would always be worth $1, became almost worthless.
Its downfall continued to roil crypto markets for months, as some analysts suspect the contagion from Terra contributed to the subsequent collapses of the Celsius bank and Three Arrows Capital hedge fund.
As thousands of crypto investors lost life savings in the crash, many began to wonder if Terra-Luna had been a Ponzi scheme all along. Its creator, the South Korean entrepreneur and Stanford graduate Do Kwon—who had a swashbuckling presence on Twitter and Discord, often trash-talking the naysayers and nonbelievers—fell unnaturally silent, emerging days later with a roadmap for a new token, Luna 2.0, meant to rescue the floundering system.
While the original Terra-Luna’s market capitalization once numbered in the billions, Luna 2.0’s market cap has mostly hovered around $300 million, although over the past weekend it saw a somewhat baffling rally up to over $800 million. Some chalked it up to new governance rules from developer Terraform Labs, but at least one whistleblower suspected it was a calculated pump from Terraform or Do Kwon himself.
We reached out to Do Kwon for comment and will update this post if we hear back.
On Wednesday, a spokesperson for South Korean prosecutors said that “An arrest warrant has been issued for a total of six people, including Do Kwon, who are currently residing in Singapore.” The arrest follows months of investigation, including search-and-seizure operations at local offices, and alleges that Kwon and others violated the country’s capital markets law.
