Crypto leaders disagree on Do Kwon blame for May market crash

Do Kwon, CEO of Terraform Labs, was denounced as a “bad actor” at Hong Kong Fintech Week on Tuesday by Jerome Wong, co-founder and chief business officer of blockchain venture studio Everest Ventures Group.

Wong made the comment during a panel discussion on how the Terra-LUNA crash came about, saying it had caused the broader crypto market crash that followed, and it was “very good to expose the bad actors in the room,” including Kwon.

Wong criticized Kwon’s structuring of LUNA as “very ridiculous”, citing the famous trading aphorism, “If you don’t know where the returns are generated, you yourself are the returns.”

Similar allegations were made in a lawsuit against Kwon filed in Singapore on September 23, claiming that he used “fraudulent misrepresentations” to induce investors to buy TerraUSD (UST, now called TerraClassicUSD) and was aware of the algorithmic stablecoins” structural weaknesses,” according to court documents provided by The Wall Street Journal.

See related article: Terra CEO Do Kwon, wanted in South Korea, left Singapore and flew to parts unknown via Dubai

“All these guys are being washed away in the wake of the Luna crash,” Wong said, praising Interpol’s red alert against Kwon as “healthy for the long-term development of the industry, because … as long as regulators come and as long as the industry becomes more institutionalized, we want these bad actors out of the game.”

Wong argued that the crash was the catalyst for the broader market decline that followed because it was not only LUNA’s owners who suffered losses, “but also institutions that had exposure to [Terra-LUNA], for example Celsius, BlockFi, Voyager, Three Arrows Capital obviously. All these institutions also take money from the retail investors. Everyone lost money at once. It’s catastrophic, I’d say.”

For Wong, this created a situation where “people lost faith in DeFi, people lost faith in stablecoins, and billions evaporated in a matter of days.”

Another panelist, global head of digital assets at Fidelity International Luc Froehlich, acknowledged the inherent risk and vulnerability of Kwon’s LUNA as a stablecoin, saying it showed the need for stablecoins to “go back to basics” because it has created a problem for stablecoins where investors “have to ask, ‘what is the counterparty risk I have?'” This potential for instability “misses the point” of the asset, he said.

However, Froehlich disagreed with Wong about the extent to which Kwon and the Terra-LUNA crash can be blamed for the crypto market decline that followed, arguing that while Terra-LUNA’s crash was very significant, so much so that “suddenly, on the street, everybody knew what a stablecoin was,” its influence on the broader crypto crash that followed is an overplayed narrative.

“We were already in an environment that was extremely volatile,” Froehlich said, “so it probably gives too much credit to [the Terra-LUNA crash] saying they were the trigger for the cryptocurrency collapse. The market was already falling.”

See related article: Terra CEO Do Kwon faces lawsuit in Singapore, next hearing Wednesday

Froehlich also disagreed with Wong’s relatively pessimistic analysis of the impact of the Terra-LUNA crash, saying that it “helped people understand what a stable coin was.”

Overall, Froehlich argued that the “major effect” of the Terra crash was “when the guillotine came down,” the industry realized how their “overwhelming” scope of creativity had distracted them and regulation had to be “priority number one.”

This industry debate comes amid a lawsuit filed in Singapore against Kwon on behalf of 359 multinational investors who lost $57 million in Terra-LUNA’s collapse in May. Although with Kwon “obviously on the run,” according to South Korean prosecutors, as much as he can deny it is unclear that he will be immediately affected by the outcome.

NOTE: Attempts to reach Do Kwon for comment were unsuccessful at the time of publication. Terraform Labs declined to comment.