You’ve probably heard the word “cryptocurrency” in the news recently, and it hasn’t been good. Many crypto companies are laying off staff, freezing withdrawals or closing up shop entirely, and overall, prices are collapsing.
So, you might be asking yourself, what’s going on?
Well, it all begins with a man named Do Kwon.
Prior to the market collapse, Kwon made billions from crypto development. He grew up in South Korea, but he eventually moved to America where he studied computer science at Stanford University. After graduating, he worked for Apple and Microsoft for three months each before moving back to Korea. There, in 2018, he co-founded blockchain company Terraform Labs with Daniel Shin and launched its LUNA token (a specific unit of cryptocurrency).
Initially, LUNA did not gain much attention in the crypto world, but by 2021, investors determined they could profit by shorting LUNA. This culminated with a peak price of $120 for each LUNA token in April 2022, according to CoinGecko.
Its main product was a stablecoin, a type of crypto token with its value pegged to the US dollar. Kwon achieved this peg using mathematical algorithms. However, some people raised concerns with his approach since Terraform’s founding, citing the potential risks of depegging and token collapse, according to the public.
Kwon, being Kwon, did not appreciate their feedback, and often went on Twitter to attack the naysayers. He called them “stupid” and trash-talked that “I don’t debate with the poor.” Along the way, as LUNA gained more users to its stablecoin, his ego grew and he continued to ridicule others.
As late as early May, during an interview, Kwon, in reference to other blockchain projects, said that “there’s entertainment in watching companies die.” His dismissive arrogance drew much criticism from within the blockchain community and caused him to gain many detractors.
But then, on May 9, something extraordinary happened. LUNA’s stablecoin lost its peg to the dollar. This caused the LUNA token to drop to fractions of a penny, resulting in a market cap loss of $40 billion, along with a domino effect that caused the overall crypto market to lose $300 billion, according to The New York Times.
Could this have been avoided if Do Kwon had listened to the critics of his algorithmic stablecoin?
On May 27, the LUNA community passed a proposal to create a new LUNA token, this time without an algorithmic stablecoin, according to Do Kwon. The new LUNA is called LUNA 2.0 and the old one becomes LUNA Classic. Currently, LUNA 2.0 is trading around $2.00, according to CoinGecko, which is far from where the original LUNA traded before the crash.
The future is unclear as to whether LUNA 2.0 will ever reclaim its high. However, what does this mean for crypto going forward?
Much is still unclear, but if there remains any lesson to be had, it is that developers should be humble and open to feedback — or else, they could meet the same demise as Do Kwon and LUNA.