S. Korea’s crypto “genius” became a disgraced fugitive
Once hailed as a genius, South Korean entrepreneur Do Kwon – now facing multiple criminal charges over his failed cryptocurrency – was a brash industry figure whose fame disintegrated into global notoriety.
After months on the run, the 31-year-old, whose full name is Kwon Do-hyung, was arrested on Thursday in Montenegro after being caught trying to board a flight using fake Costa Rican travel documents.
He is accused of fraud over the dramatic implosion last year of his company Terraform Labs, which wiped out about $40 billion of investors’ money and rocked global crypto markets.
Immediately after his arrest, the United States slapped him with a raft of charges for what it called a “multibillion-dollar securities fraud” and South Korea, where he faces separate charges, said it wants to extradite him.
The cryptocurrency he created, an “algorithmic stablecoin” called Terra, was in reality a glorified Ponzi scheme, experts say.
Yet as recently as March 2022, Kwon was described in glowing South Korean media reports as a “genius” as thousands of private investors lined up to pour money into his company.
“Kwon and his story are a product of our time,” Cho Dong-keun, an economics professor emeritus at Myongji University, told AFP.
“He knew how to win the hearts of those who so desperately wanted to make a fortune in one fell swoop. He also knew how to harness their anxiety and turn it into massive profits.”
– Elite Connections –
Born in 1991, Kwon attended South Korea’s elite Daewon Foreign Language High School, where, according to a book he wrote about his school days, he founded an English-language student paper and competed in various English debating championships.
He went on to major in computer science at Stanford University in the US, and reportedly interned at Apple and Microsoft before returning to Asia to start his own business.
In 2018, he co-founded Terraform Labs with Daniel Shin – who is connected to South Korea’s elite Samsung family through his uncle – and developed the TerraUSD and Luna currencies.
He quickly rose to fame, thanks in part to Shin’s connections, and succeeded in branding himself as a young industry candidate.
TerraUSD was marketed as a “stablecoin”, a type of cryptocurrency that is typically tied to stable assets such as the US dollar to prevent drastic price swings.
In 2019, he was featured in Forbes’ 30 under 30 Asia list.
Forbes wrote that Kwon’s “price-stable cryptocurrency, or stablecoin, attracted 40 million users to work with the company at its launch in January 2018”.
“Aiming to build a blockchain-based payment system, Terra has raised $32 million from crypto giants such as Binance,” it said.
– ‘South Korean Elizabeth Holmes’ –
But experts had long warned that Kwon’s model was fundamentally flawed, with some outright calling it a Ponzi scheme.
Unlike other stablecoins backed by real assets such as cash or gold, TerraUSD was algorithmic – only linked to its sister currency Luna, using math and incentive mechanisms to maintain the link.
“Algorithmic stablecoins like Terra/Luna were doomed from the start,” Christian Catalini, founder of MIT’s Cryptoeconomics Lab, told AFP.
“Things can work for a while, while the ecosystem grows, but are destined to enter a death spiral at some point.”
A full investigation of Kwon should help clarify what happened when Terra/Luna collapsed, he said, adding that this was necessary to improve the crypto industry as a whole.
“We need to ensure that bad actors are not able to use the technology to design fraud and perpetuate other forms of fraud or financial crime,” he said.
Kwon’s impressive rise and precipitous fall is now being compared to convicted American fraudster Elizabeth Holmes, the disgraced founder of medical technology startup Theranos.
Kwon “is just like Holmes, another elite who went to Stanford,” wrote the Korea Economic Daily newspaper.
Cory Klippsten, CEO of crypto trading app Swan.com, made a similar parallel on Twitter last year.
Kwon had “major Elizabeth Holmes vibes,” he wrote ahead of the collapse. “Awful levels of cockiness on screen, 99.99% of the time means fraud.”
Kwon slipped out of South Korea before the disaster struck last May, and has effectively been in hiding ever since – although he claimed on Twitter that he was not “on the run”.
South Korea eventually revoked his passport, and asked Interpol to place him on the red list.
“A responsible adult and entrepreneur would have stayed and explained,” said Professor Cho of Myongji University.
“The fact that he tried to evade the authorities by using fake passports shows his character.”
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