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Lunacy Episode 3: Legends of the Fall

This week we delve into the underlying mechanisms of terraUSD and how they incentivized experienced investors to drive the stablecoin into a death spiral.

March 14, 2023
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"Crypto Crooks" is sponsored by Chainalysis.

Do Kwon wasn’t creating a new grift. His coin was history, repeated. Financial experts foretold the failure of Do Kwon’s empire from the beginning – because they’d seen it all happen before, at the Bank of England no less.

In our deep dive into terraUSD, we examine how the death spiral that ate the stablecoin alive was knit into the very fabric of the project. It was no accident, fluke or unexpected occurrence: It was inevitable.

Next up, our season finale – and then, a bonus episode on the bombshell revelations of an SEC investment suit against Do Kwon, filed this February.


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“Crypto Crooks” is a CoinDesk Podcast Production. The executive producer is Jared Schwartz, with additional production by Eleanor Pahl, Nora Battelle, Jonas Huck, and Moon Beast. Fact-checking is by Amber Von Schassen, and sound design and music are by Altus Noumena. This show is written and voiced by David Z. Morris.

Audio Transcript: This transcript has not been edited and may contain errors.


Investing in American companies from the mid 19th to early 20th centuries was a lot like investing in global crypto markets today.

Both settings were low on regulatory oversight, but had a huge supply of naïve investors. Those investors - many of them entering financial markets for the very first time - heard there was money to be made on exciting new technologies. But they didn’t entirely understand those technologies, their implications, or how they would generate profits.

Then as now, this combination meant swindles and scams were constant.

That’s why so much terminology for fraud and confidence games – language still widely used in English today – comes to us through that early American setting. The word “grift” itself comes from “graft,” or corruption. A “shill” – as crypto followers know all too well – is a grifter’s co-conspirator, who pretends to be an unaffiliated fan to create the illusion of public enthusiasm.

The final stage of a classic confidence or investment swindle is known as “the blow-off.” The blow-off comes after a grifter has taken everything they think they can from their victim, also known as the “mark.”

Sometimes a blowoff is simple – the con artist simply disappears. But often, they’ll try to “cool off” their mark – that is, to defuse, control, or redirect a victim’s anger about getting scammed. For instance, in a horserace-fixing scam, a 19th century conman might stage a horse’s last-second sickness. Then, the fixer could keep the huge bet they talked the mark into placing on it, and blame pure bad luck for the massive loss. One goal of cooling off a mark is to reduce the chance that they’ll pursue legal action against the con artist.

The creators of the TerraUSD stablecoin had a lot of victims to cool off when their $60 billion structure collapsed to nearly zero within the space of a week.

They had designed what experts repeatedly called out as a fatally and inherently flawed structure. But when that faulty structure finally broke, allowing savvy traders to profit from its flaws, Terra creator Do Kwon and his cronies had to come up with a different explanation for the hundreds of thousands of investors and users who had lost money.

It simply couldn’t be that the critics had been right the whole time - something else must have been involved. It must have been a *conspiracy.*

Do Kwon and some Terra supporters began to argue that Terra’s collapse was not the result of flaws in the TerraUSD design. Instead, Terra had been the target of a malicious attack.

Do Kwon, for instance, speculated that the attack had been coordinated with help from within Terraform Labs, evoking a vast web of shadowy enemies arrayed against him. An anonymous post on 4chan went viral with unsupported claims that major investment firms like Blackrock and Citadel had played a hand in the collapse.

These claims weren’t true, but the big, scary names served their purpose: redirecting anger away from Do Kwon and Terraform labs. People spreading these claims sometimes suggested that the attackers had intentionally destabilized TerraUSD because they feared its power as the future of money. This made Do Kwon’s failure look like a weird sort of success. That would soon help Do Kwon squeeze the last few drops of money out of his loyalists with a bold plan to re-launch Terra – but more on that later.

For anyone familiar with finance, the idea that the collapse of Terra was caused by a “malicious attack,” a “coordinated attack,” or some kind of conspiracy, is almost nonsensical. Trading assets is generally a zero-sum game, where every win comes at the expense of someone else’s loss. In this PVP environment, money is the only score that matters. If you build a structure that someone can extract money from, they probably will – no malice required.

Here’s Ryan Clements, a finance professor who warned of TerraUSD’s inherent fragility ahead of the collapse.


“You're hearing the narrative spun as this attack, or this orchestrated attack … I don't think that's accurate. I see this more as a stress test.

I think that it was clear that there were some very, very smart people who were looking at this ecosystem, and looking for ways to make money while exploiting a fragile and flawed ecosystem.

“And, and I don't see that as some type of … villainous or even illegal behavior … There was … a willingness to exploit a vulnerability in an already fragile ecosystem, where these vulnerabilities weren't properly disclosed to people operating and engaging in the ecosystem.”


Our goal with “Crypto Crooks” is to help listeners make better decisions, informed by the history of finance and fraud. The entire Terra/Luna collapse might have been avoided if Do Kwon and his cheerleaders had learned a few of those lessons sooner.

Because while the idea of an algorithmic stablecoin might sound incredibly novel, it’s not – people have been trying to stabilize currencies against one another for decades. And history shows that while these pegs can work temporarily, they rarely hold up long-term. That’s because defending a currency peg almost always creates opportunities for traders to profit from breaking it.

Do Kwon’s supporters, from Mike Novogratz to Three Arrows Capital to hordes of anons on Twitter, listened to a blustering thirty-year-old instead of this clear evidence of history. And not obscure history, either – Terra’s fate was foretold more than three decades ago, in one of the most legendary trades of all time.

In 1992, one of the greatest financiers alive cemented his reputation, and the cornerstone of a massive fortune, by breaking another fragile, unsustainable stablecoin. Like TerraUSD, this stablecoin was propped up by complex financial engineering and unquestioning social faith.

It was called the British Pound.

Welcome to “Crypto Crooks,” Season 2: “Lunacy – The Rise and Fall of Do Kwon.”

This is Episode 3: “Legends of the Fall.”

I’m David Z. Morris, CoinDesk’s Chief Insights Columnist. I’ve been reporting on cryptocurrency since 2013. I’ve followed crypto so closely because I believe it will profoundly transform how we live.

But I’ve also watched as the real promise of crypto has been undermined again and again by a stream of con-men and hucksters who prey on the uninformed, the naïve, and the desperate. It remains a lightly-regulated and poorly-understood sector, which makes it a perfect hunting ground for scammers. A big part of my job here at CoinDesk is calling out sketchy projects and outright frauds, and I’ve seen enough of them over the years to know what they look like.

We’re presenting “Crypto Crooks” to help educate and protect crypto investors, or just the crypto-curious, from repeating the mistakes of history. Each short season of the show focuses on a different major fraud, crime, or bad idea that fleeced investors and the industry. Because while crypto is a radical new technology, the fraudsters using it to ensnare victims use techniques as old as the financial industry – in some cases, as old as money itself.

This season, we tell the story of a man who thought he had re-invented finance, because he never understood it in the first place.

Part 1: A Soros Style Attack

In November of 2021, the pseudonymous Twitter account Freddie Raynolds posted a thread of what they described as “how a wealthy attacker could not only break [Terra], but profit heavily doing it with a Soros style Black Wednesday attack.”

The thread described how a market actor with $1 billion in capital could knock TerraUSD off its peg, just by using Terra’s own stabilizing algorithm and the well-timed market sales of Luna and TerraUSD. This tactic would, as described, generate hundreds of millions of dollars of profit, in a few days, from that $1 billion in starting capital. With profits like that on the table, destroying Terra would have been merely a side-effect of the real goal – making money.

Naturally, Do Kwon arrived to carefully rebut the ideas presented in the thread.

His response: “Probably the most r****ded thread I’ve read this decade… Silence is a perfectly acceptable option if stupid. Billionaires in my following, go ahead, see what happens”

As we now know, TerraUSD holders did, in fact, go ahead, and they saw what happened. But instead of a single well-funded attacker, Nansen Research later concluded that TerraUSD depegged between May 7 and May 11, 2022 because at least seven different wallets were aggressively selling their Terra holdings.

Some may have done so as part of a profit strategy like the one Freddie Raynolds outlined. But Nansen also speculated that “The depeg of [TerraUSD] could instead have resulted from the investment decisions of several well-funded entities, e.g., to abide by risk management constraints or … to reduce TerraUSD allocations deposited into Anchor in the context of turbulent macroeconomic and market conditions.”

In other words, while a premeditated and strategic attack may have motivated some sellers, a lot of big players may simply have seen the first wobble of the TerraUSD peg on May 7, and decided to sell their TerraUSD as fast as possible because they had lost faith in the asset.

But what was Freddie Raynolds talking about when he described “a Soros style Black Wednesday attack”?

To tell the full story, we have to remember that the Euro, currently the shared currency of the European Union, is a new invention, launched on the 1st of January, 1999. But the transition had been planned for decades, with European countries preparing to form a monetary union as early as the late 1970s. The gradual process of bringing their currencies into alignment was managed under what was known as the European Money System.

One major part of this system was what was known as the Exchange Rate Mechanism, or ERM. Countries who entered the European Money System agreed to maintain their exchange rates within a specific band relative to one another. While the U.K. didn’t particularly want to join the incipient European Monetary Union, there were other benefits to participating in the Exchange Rate Mechanism, including easier trade with the continent.

That’s how the British Pound became a stablecoin with some structural similarities to TerraUSD. In order to stay in the ERM, the British Central Bank had to actively intervene in global currency markets, buying and selling pounds to maintain their value - not entirely unlike the buying and selling encoded as an algorithm in TerraUSD.

In a broad sense, of course, the pound had almost nothing in common with TerraUSD. In particular, Britain has a real economy, while more than 70% of all TerraUSD in the Terra ecosystem was being used exclusively to collect seemingly free money through the Anchor protocol.

But by committing to propping their currency up through the market, the U.K. turned the pound into an instrument with many of the same risks that TerraUSD would invent from thin air three decades later.


“One of the … less well understood elements of financial crises was attempts through financial engineering to take a risky asset and turn it into a non-risky asset. And that doesn't turn out well, particularly when that risky asset is purported to be a near cash equivalent or cash substitutes.”

Once again, that’s finance professor Ryan Clements.

The U.K. had added its European currency peg to a number of existing problems. Above all, Great Britain was in a recession by the early 1990s. But because they had agreed to the currency peg, they couldn’t do what a country in recession normally would – lower central bank interest rates and devalue the currency.

Bank of England interest rates were then over 10%. Lowering them would have increased the circulating money supply, increasing borrowing and investment. But it also would have devalued the Pound, breaking ERM guidelines.

U.K. leaders like Prime Minister John Major also didn’t want to lower rates, because consciously violating the ERM agreement could seem like an admission of economic defeat.

This points to a major resonance between the pound of the early 90s and TerraUSD: remember that Do Kwon and his backers believed TerraUSD could be backed in part by an ‘ecosystem.’ But the artificially high, unsustainable interest rate in the Anchor protocol attracted most of the activity on Terra.

In other words, both the British Pound in 1992 and TerraUSD in 2022 were propped up by artificially high interest rates – rates that didn’t represent the real return on economic activity.

In 1992, two men saw clearly that the pound’s managed peg couldn’t continue – and that they could make money by being in the right place when it failed. George Soros had cofounded a hedge fund called Quantum Fund in 1973. By 1992, Soros and his then-lead portfolio manager, Stan Druckenmiller, had been watching the pound closely for years.

On September 15 of 1992, Soros and Druckenmiller decided it was time to pounce – the pound was looking particularly weak after some skeptical comments by the head of Germany’s central bank. They began to ferociously short the British currency – that is, to bet that it was about to lose its peg and fall in value.

Once word got around that Soros was shorting the pound, others joined in. One way they did this was to borrow pounds, then sell them for other currencies, such as Deutschmarks, that they believed would retain value. In some cases, they were selling those pounds right back to the Bank of England - much as future crypto traders would sell TerraUSD back to the Terra system as part of their short. If the pound crashed as Soros and Druckenmiller believed it would, they could then repay the pound loans at much lower exchange rates and reap huge profits.

Normally a mis-priced currency could yield small returns through a trade, but the opportunity would be relatively small and brief. But the fact that the pound was pegged to the ERM, and that the Bank of England had to defend the peg, made attacking it much more profitable. Three decades later, in much the same way, the TerraUSD peg would make betting against it more profitable than your average winning crypto trade.

On September 16 of 1992, the Bank of England got to work trying to support the pound against Soros and other short sellers. They couldn’t lower interest rates to devalue the currency. Their remaining option was simply to use the U.K.’s foreign currency reserves, and perhaps even some gold, to buy pounds on the open market. The central bank had bought nearly 1 billion pounds before 9am on the morning of the 16th. It wasn’t enough to stem the tide of sales, but U.K. leadership refused to admit defeat, so the Bank of England kept buying.

None of it helped stop the pound’s decline.

Atlantic reporter Sebastian Mallaby characterized events this way in a 2010 article:

“Every hour that went by, hedge funds and banks sold more [pounds] sterling to the Bank of England, which was being forced to load up on a currency that seemed sure to be devalued. Britain was presiding over a vast financial transfer from its long-suffering taxpayers to a global army of traders.”

Much the same could be said of attempts to defend the TerraUSD peg in May of 2022. The main difference was that an algorithm, rather than a central bank, was paying out profits to the traders who sold TerraUSD as it crashed. The algorithm would always create one dollar’s worth of Luna in exchange for one TerraUSD – even if the TerraUSD could be bought on the open market for 90 cents. Or eighty cents. Or a nickel.

This was the fatal, idiotic flaw at the heart of TerraUSD and other algorithmic stablecoins. Once their peg wavers, they will effectively short-sell *themselves* all the way to zero, generating profit for attackers on the way down.

But just a few months before Terra collapsed, Do Kwon and his allies had actually added even more incentive to depeg it. The Luna Foundation Guard, established in January of 2022, had begun trading Luna for Bitcoin.

They thought this was a “reserve” that could help defend the TerraUSD peg. But just as Britain had paid its own attackers as it tried to defend the pound in 1992, the LFG reserve would ultimately be nothing more than a pot of gold handed over to the most agile traders shorting TerraUSD.

When the smoke had cleared on September 16 of 1992, the U.K. government couldn’t defy the traders. They threw in the towel, announcing that Great Britain would leave the European Exchange Rate Mechanism, and allow the pound to “float” on the open market.

The technical term for what happened next is that the British Pound fell off a cliff. Without the guarantee of a central bank subsidy, the Pound lost 14% of its value against the German Deutsche Mark within less than three weeks. It lost 25% of its value against the US dollar over the course of one month.

George Soros had won, exposing the pound’s fundamental weakness – and making $1 billion dollars in the course of just a few days by shorting it.

Crucially, the financial industry doesn’t regard what he did as villainous, much less criminal. Quite the opposite: Soros remains revered as a financial genius, and even something of a hero.

That’s because what Soros did was not a deceptive or unfair act of market manipulation. In fact, like most successful short-sellers, he made his cool billion dollars by spotting someone else’s lie, and betting on when the rest of the market would see through it.

In this case, the liar was the United Kingdom, which was essentially overstating the real value and strength of the pound, and using central bank financial engineering to prop it up. By applying financial pressure at the right place and time, Soros helped expose that hidden weakness.

Much the same could all be said of the traders who made big profits destroying TerraUSD. The supposed stablecoin was never anything more than a dream, but its obscure mechanisms and ponzi-like incentives were both falsely propping up its market value, and enticing more investors with every passing day.

The traders who depegged TerraUSD acted out of the purest motive imaginable in a borderless global financial market: impersonal, faceless, mathematical greed. But their greed exposed the fragility of a far-fetched, hype-driven scheme.

Their greed - well informed, tactical, big-picture greed - also saved untold thousands of future victims from impoverishment at the hands of Do Kwon.

Part 2: The Death Spiral

You have to take some serious risk to make a billion dollars depegging the British pound. For a conventional short position, George Soros would have had to borrow pounds, then sell the borrowed pounds into the market. If the pound had gone up instead of down, he could have lost a lot of money repaying those initial loans. But as it happened, he was right, and so he could repay the loans cheaply, pocketing the difference as profit.

But traders didn’t have to take that kind of risk to profit from TerraUSD losing its one-dollar peg. In fact, seemingly unbeknownst to its creator Do Kwon, the Terra system included much lower-risk ways for traders to profit from its depegging. That’s one of the reasons TerraUSD was so fragile that it went to effective zero within days of losing its dollar peg in May of 2022.

Remember that one TerraUSD could always be exchanged for one dollar worth of the Luna balancer token through the Terra blockchain protocol. The exact exchange rate between TerraUSD and Luna was adjusted whenever TerraUSD wavered from the one-dollar price, with the goal of balancing demand in the market.

The Luna side of the equation changed too, depending on the real-world price of the balancer token. Even when TerraUSD was trading at a price of less than one dollar, the algorithm made sure that it could be “burned,” or destroyed, in exchange for a full, real-world U.S. dollar’s worth of Luna. So if a Luna token was trading for ten cents and TerraUSD slipped to ninety-nine cents, a trader could burn the TerraUSD to receive ten Luna, worth one dollar.

That would produce an instant 1% profit if the Luna was sold on the open market. That might not sound like much, but it would translate to a lot of easy money at large scale, strongly motivating traders. Offering this slice of profit for destroying a TerraUSD token was intended to help bring the supply back in line with demand, and the TerraUSD price back to its one dollar peg.

But there’s a fatal, fairly simple flaw in this scheme – a flaw that helped create the rapid “death spiral” that killed Terra.

The further TerraUSD dropped from one dollar, you see, the more profitable it became to dump it. The algorithm would give you a dollar’s worth of Luna when TerraUSD traded at ninety-nine cents – but it would also give you a dollar’s worth of Luna if TerraUSD was trading at eighty cents.

That sort of steep depeg of TerraUSD would have another impact – one that’s not accounted for in its algorithmic design. Remember that TerraUSD and similar stablecoins were pitched as the primary application of the entire Terra blockchain. Even other services on the chain, such as the subsidized Anchor protocol, were thought of by Terra’s creators primarily as an “ecosystem” that would generate demand and support the stablecoin.

This means that when TerraUSD dipped from its peg, it made the entire Terra blockchain seem less trustworthy and reliable. And the main asset whose price reflected faith in the overall Terra system was Luna – the same balancer token that was printed by the algorithm to support TerraUSD.

This means that once TerraUSD moved far enough off its peg, several things would happen at the same time. Traders looking to profit from the rich arbitrage would be selling all the TerraUSD they could get their hands on – including by buying it on the open market for its depegged, under-a-dollar price.

They would then burn the TerraUSD, get a dollar’s worth of Luna, and sell the Luna for another currency, such as Bitcoin or a different, more genuinely stable stablecoin. The truly daring could sell the Luna for more TerraUSD - again, bought for less than a dollar, then burned for a dollar of Luna. Executed quickly enough, this was a relatively low-risk strategy that could produce big returns.

But at the same moment, Luna holders would be getting nervous about the health of the entire Terra system, and selling off their Luna tokens. This means the market price of Luna would, all things being equal, decline quickly in the event of a major TerraUSD depeg. This is almost mathematically predictable – not the kind of random “black swan” event that we heard Kyle Davies of Three Arrows Capital claim it was in our last episode.

Perhaps a picture of the death spiral is already forming in your mind.

As TerraUSD depegged, Luna’s price dropped, meaning more Luna had to be printed for every TerraUSD redeemed through the algorithm. That meant even more Luna entered the market, pushing the price down further. In turn, even *more* Luna had to be printed to equal one dollar for every TerraUSD being cashed in.

There’s a word for this: hyperinflation.

Between May 5 and May 13 of 2022, the total supply of Luna grew from 725 million to a staggering 7 trillion tokens. At the same time, with investor faith evaporating, the price plummeted to effectively zero. Among other implications, there was no way Luna could backstop the price of TerraUSD.

As early as May 9th, Do Kwon and his allies pulled the ripcord on what they thought was their emergency parachute. They deployed the $2.8 billion worth of Bitcoin they had accrued under the Luna Foundation Guard. Like the Bank of England in 1992, they were buying TerraUSD and Luna with that Bitcoin, trying to prop up the market.

But all they really accomplished was giving good money to the traders who had rightly bet against their bad money. With more than $15 billion worth of TerraUSD in circulation, the Luna Foundation Guard’s $2.8 billion Bitcoin reserve had no prayer of halting the market forces grinding Terra into dust. Just like the executives of the Bank of England, Do Kwon and his cronies eventually gave up, letting the Terra system burn to the ground.

But unlike the executives of the Bank of England, Do Kwon didn’t have a country to go back to.

Part 3: The Basis for the Charges

Hundreds of thousands of investors worldwide lost devastating amounts of money when TerraUSD collapsed. Some may have bet on the Terra system because premier venture capitalists had endorsed the project. Some were enticed by the sky-high payouts being offered in Terra’s bank-like Anchor protocol.

But above all, Terra investors were swayed by Do Kwon’s own braggadocious pronouncements. Kwon loved making grand declarations of his own infallible dominance. In March of 2022, when Terra was on top of the world, he tweeted “By my hand, $DAI (spelled D-A-I) will die”. In his perfectly trolly way, he was declaring his goal of outcompeting MakerDAO, issuer of the DAI stablecoin. Unlike TerraUSD, DAI is collateralized – backed with funds including Ether and other currency. (And nearly a year after TerraUSD’s catastrophic implosion, DAI is still going strong.)

Do Kwon loved to badmouth competitors - including other algorithmic stablecoins.

Here’s what happened on December 9th of 2021 on CoinDeks’s daily First Mover broadcast, when CoinDesk editor Lawrence Lewitinn asked Do Kwon about the unreliability of algorithmic stablecoins.


“What do you say to those that argue algorithmic stablecoins are actually the most unstable type of stablecoin, and that they shouldn’t even be called stablecoins … What are you doing differently? How do you allay those kind of fears? CAN you allay those kind of fears?”


“I think that kind of stereotype is a perfect recipe to get rekt. What I like to say is that silence is a perfectly good option, if stupid. What I mean by this is that a lot of algorithmic stablecoins, like Iron Finance, Basis Cash, EST{?, DSD{?}, the main problem wasn’t that they had an on-chain programmatic monetary policy. The problem was that the incentive they were giving people to hold the algorithmic stablecoins was not sustainable. It’s essentially a ponzi scheme … What’s unique about Terra is that … all the use cases and the reason people hold Terra stablecoin hasn’t been driven by these recursive incentives. There’s no incentives in Luna to hold the Terra stablecoin.”


In the space of barely a minute, Do Kwon told three lies. First, as we heard in episode 2, Luna offered a very strong financial incentive to hold TerraUSD: collecting the Anchor protocol’s high yield, soon became the sole purpose of more than 70% of TerraUSD in circulation.

Second, while Do criticized other tokens as “not sustainable,” the payouts from Anchor, and in turn Luna as a whole, were money losers, and heavily subsidized by outside investors - the definition of unsustainable.

The third lie that Do Kwon told that day was a lie of omission. He left out some key information about Basis Cash, which he lumped in with tokens that are “essentially a ponzi scheme.” This omitted information was so crucial, that under most modern financial regulation, the interview itself might be considered a crime.

Basis Cash was very similar to Do Kwon’s TerraUSD stablecoin. Like TerraUSD, the Basis Cash stablecoin wasn’t “backed” by dollars or other assets. Like TerraUSD, it instead relied on a two-token system and arbitrage from traders to keep its stablecoin “pegged” at one dollar. Basis Cash had been inspired by Basis, a project first proposed in 2017 by Nader Al-Naji, but later shelved due to regulatory concerns.

Basis Cash took the idea and ran with it. The founders of Basis Cash used pseudonyms, appearing on Twitter and elsewhere as the cartoon characters Rick and Morty Sanchez. The experiment was as catastrophic and hair-raising as most Rick and Morty adventures.

Basis Cash launched in late November of 2020. Within just three months, Basis Cash experienced a death spiral much like the one that would later destroy TerraUSD. The Basis stablecoin dropped from its dollar peg to just thirty cents in January of 2021. It currently trades for fractions of a penny.

So maybe it’s fair enough that Do Kwon was badmouthing such a flawed project.

But in May of 2022, CoinDesk reporters Danny Nelson and Sam Kessler made a shocking discovery: Rick Sanchez, the pseudonymous cofounder of Basis Cash, was Do Kwon. Basis Cash had been developed by staffers of Terraform Labs. Though Do tried to downplay his involvement, sources close to events say Basis Cash was his initiative.

We’ve compared Do Kwon to Elizabeth Holmes, founder of Theranos. Both entrepreneurs dreamed of building things that experts said were impossible – microscopic automated blood testing for Holmes, decentralized and unbacked digital dollars for Do Kwon.

In both cases, it turns out the experts were right – but Elizabeth Holmes and Do Kwon kept going. When she couldn’t get Theranos’ blood testing machines to actually work, Holmes lied about it. That included repeatedly pretending that test results from other company’s machines actually came from Theranos’s. Then she rushed the tests to the public, where they produced inaccurate, and in some cases life-threatening, results. For this and other crimes, Holmes has been sentenced to more than 11 years in prison.

The Basis Cash incident could be considered an analogous moment for Do Kwon. He ran an experiment that failed – but he concealed that failure. Kwon continued insisting on the promise of algorithmic stablecoins for well over a year after Basis Cash failed in January of 2021.

Here’s CoinDesk reporter Sam Kessler.


“Did Do actually believe in this currency? I think Do recognized the flaws, and the risks that were inherent in building an algorithmic stable coin. And that’s something we can get into with the whole basis cash thing. Terra was notably the only algorithmic stable coin to have not failed up until this point … basically every single similar project that failed before this. So he recognized that, no doubt.”

That would mean TerraUSD wasn’t just a bad idea that failed: It was a fraud, from practically the very beginning.

Do Kwon is just one in a wave of charismatic grifters and shameless operators who seem to dominate our era. From the catastrophic Fyre Festival and fake heiress Anna Delvey, to business grifts like Nikola and Theranos, we’re beset by con artists on all sides.

These frauds are united by the compelling narratives, big personalities, and high-profile allies that distract from their huge lies. Facts may be easy to find in the era of the internet, but it seems credentialism and charisma can overwhelm the critical faculties of even supposed professionals. The internet may actually make fraud easier, giving motivated fantasists a huge, unfiltered platform for spreading their version of reality to vulnerable marks.

That’s certainly how things worked for Do Kwon and Terra. A compelling figurehead who stood by an obviously flawed idea was able to simply drown out and bully the critics who dared to challenge him. Credulous venture capitalists and investors lifted Kwon even higher, whether they were themselves duped by his charisma – or cynically thought they could make some money from his dumb idea before it collapsed.

What makes Do Kwon uniquely fascinating is that the basic structure of the TerraUSD stablecoin system was clear for all to see. Financial analysts were able to identify and call out its fatal flaws years before they became a terrifying, life-shattering reality for hundreds of thousands of victims.

Some have argued that this means Do Kwon wasn’t a fraud at all. Instead, Do and his defenders have argued, the fault lay with investors, who simply failed to understand just how fragile Terra was.

But a guy with a bad idea can also be a liar and a thief.


“He was literally saying that it's like a recursive pyramid scheme … I thought this was an exit scam because there was no one who was actually sure about this may maintain the system … with just one arbiter there was no verifiable software system just to check that this is going to work …

“They were trying to make it as cool as possible. And then they would just sell it off to the other like VCs and stuff and then just leave. So I thought it was like it's like a hugely prolonged … exit scam. Because …You know like VCs and these like people from these Ivy Leagues were kind of this stupid.”


That’s one of Terraform Labs’ early programmers, who worked closely with Do Kwon, and tried to warn of the flaws in the developing Terra system. He says blind loyalty to Do Kwon silenced critics inside the organization, even more effectively than the hordes of social media followers who piled on to public skeptics.

And that loyalty was rewarded.


“In Korea …it's actually true that Koreans … form mafias for corruption … And you could actually really understand how these TerraForm labs employee were actually, didn't listen to the truth or fact.


The Insider - next time, on Crypto Crooks.


“That's when I was thinking like, I should get out of this company and they don't understand anything.”