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 roiled crypto markets for months, as analysts say contagion from Terra contributed to subsequent collapses of the Celsius bank and Three Arrows Capital hedge fund, leaving a trail of billions of dollars in unpaid loan debts.
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 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 stayed under $300 million, although over the past weekend it saw a surprising rally up to over $800 million. Some chalked it up to new governance rules from developer Terraform Labs, but at least one self-proclaimed whistleblower suspected it was a calculated pump from Terraform or Do Kwon himself.
Reached by Fast Company, a Terraform spokesperson declined to comment.
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 alleges that Kwon and others violated the nation’s capital markets law, and follows months of investigation including search-and-seizure operations at local offices. In July, police raided the home of Kwon’s co-founder Daniel Shin, and Terraform employees have been barred from leaving the country.
