Do Kwon: South Korea’s crypto ‘genius’ turned disgraced fugitive

Once hailed as a genius, South Korean entrepreneur Do Kwon — now going through a number of prison costs over his failed cryptocurrency — was a brash business determine whose fame disintegrated into international notoriety.

After months on the run, the 31-year-old, whose full title is Kwon Do-hyung, was arrested Thursday in Montenegro after being caught making an attempt to catch a flight utilizing faux Costa Rican journey paperwork.

He is accused of fraud over the dramatic implosion final yr of his firm Terraform Labs, which worn out about $40 billion of buyers’ cash and shook international crypto markets.

Immediately after his arrest the United States hit him with a slew of costs over what they referred to as a “multi-billion-dollar crypto asset securities fraud” and South Korea, the place he faces separate costs, mentioned it needs to extradite him.

The cryptocurrency he created, an “algorithmic stablecoin” referred to as Terra, was in actuality a glorified Ponzi scheme, consultants say.

Yet as lately as March 2022, Kwon was being described in glowing South Korean media reviews as a “genius” as 1000’s of personal buyers lined as much as pour money into his firm.

“Kwon and his story are a product of our times,” Cho Dong-keun, an economics professor emeritus at Myongji University, instructed AFP. “He knew how to win the hearts of those who so desperately wanted to make a fortune in one stroke. He also knew how to exploit their anxiety and turn it into massive profits.”

– Elite connections – Born in 1991, Kwon attended South Korea’s elite Daewon Foreign Language High School the place, in accordance with a guide he wrote about his college days, he based an English-language scholar paper and competed in numerous English debating championships.

He went on to main in pc science at Stanford University within the US, and reportedly interned at Apple and Microsoft earlier than returning to Asia to start out his personal business.

In 2018, he co-founded Terraform Labs with Daniel Shin — who’s linked to South Korea’s elite Samsung household by means of his uncle — and developed the TerraUSD and Luna currencies.

He rapidly rose to fame, partly because of Shin’s connections, efficiently branding himself as a younger business luminary.

TerraUSD was marketed as a “stablecoin”, a sort of cryptocurrency which is often pegged to secure belongings such because the US greenback to stop drastic worth fluctuations.

In 2019, he featured in Forbes’ 30 beneath 30 Asia checklist.

Forbes wrote that Kwon’s “price-stable cryptocurrency, or stablecoin, attracted 40 million users to work with the company at launch in January 2018”.

“With the aim of building a blockchain-based payment system, Terra has raised $32 million from crypto-giants such as Binance,” it mentioned.

– ‘S Korean Elizabeth Holmes’ – But consultants had lengthy warned Kwon’s mannequin was essentially flawed, with some outright calling it a Ponzi scheme.

Unlike different stablecoins backed by real-world belongings reminiscent of money or gold, TerraUSD was algorithmic — pegged solely to sister foreign money Luna, utilizing maths and incentive mechanisms to take care of their peg.

“Algorithmic stablecoins like Terra/Luna were doomed from the very beginning,” Christian Catalini, founding father of MIT’s Cryptoeconomics Lab, instructed AFP.

“Things can work for a while, while the ecosystem is growing, but are destined to run into a death spiral at some point.”

A full investigation of Kwon ought to assist make clear what occurred when Terra/Luna collapsed, he mentioned, including this was obligatory to enhance the crypto business as a complete.

“We need to make sure that bad actors are not able to use the technology to design scams and perpetuate other forms of fraud or financial crime,” he mentioned.

Kwon’s spectacular rise and precipitous fall at the moment are being in comparison with these of convicted American fraudster Elizabeth Holmes, the disgraced founding father of the medical expertise startup Theranos.

Kwon “is just like Holmes, another elite who went to Stanford”, the Korea Economic Daily newspaper wrote.

Cory Klippsten, CEO of crypto buying and selling app Swan.com, made an analogous parallel on Twitter final yr.

Kwon had “major Elizabeth Holmes vibes”, he wrote forward of the collapse. “Creepy levels of cockiness on display, 99.99% of the time means fraud.”

Kwon slipped out of South Korea earlier than catastrophe struck in May final yr, and has successfully been in hiding ever since — at the same time as he claimed on Twitter that he was not “on the run”.

South Korea finally revoked his passport, and requested Interpol to put him on the crimson discover checklist.

“A responsible adult and entrepreneur would have stayed and explained,” professor Cho at Myongji University mentioned.

“The fact that he tried to avoid authorities by even using forged passports shows his character.”