Could Do Kwon go to prison? Probably not, but civil fines possible

Do Kwon, the 30-year-old South Korean founder of a $60 billion stablecoin project that imploded last month, has a knack for convincing people to buy what he’s selling. Most recently, Kwon sold his vision of a new kind of payment system that would upend the status quo and replace the world’s currencies.

TerraUSD (also called UST) and its sister token, luna, moved in lockstep. UST functioned as a U.S. dollar-pegged stablecoin meant to replace global fiat transactions, while luna helped UST keep its peg and earned investors a killing as it appreciated in value. (In 2021, luna was up 15,800%.) Traders were also able to arbitrage the system and profit from deviations in the prices of the two tokens.

The setup wasn’t new. Algorithmic stablecoins, which rely on a complex set of code rather than hard currency reserves to stabilize their price, have been a thing since at least 2015 — and the idea of staking crypto to earn an unrealistically high return exploded in popularity in the last few years alongside the rise of decentralized finance, or DeFi.

But Kwon had a real touch for marketing. He cast himself in the likeness of a next-gen Satoshi Nakamoto (the pseudonymous name given to the founder of bitcoin), crossed with the social media swagger of an Elon Musk.

Kwon raised $207 million for his Terraform Labs, which launched luna and UST, and his almost shameless level of online bravado, in which he shunned the “poor” (that is, luna skeptics) on Twitter, drew in the masses. He inspired an almost cult-like following of self-identifying LUNAtics — including billionaire investor Mike Novogratz, who went so far as to memorialize his membership in this club with a tattoo on his arm.

Terra’s Anchor platform, which really helped to put UST on the map with its outsized return of 20%, could have been a big red flag for savvy investors. Many analysts believed it was unsustainable. At the time, government bonds were paying around 2% and savings accounts less than 1%. But investors piled in anyway, giving luna and UST a combined market value of almost $60 billion at one point.

Now, both tokens are essentially worthless. The failure was so massive, it helped drag down the entire crypto asset class, erasing half a trillion dollars from the sector’s market cap. It also dented investor confidence in the whole space.

It was reportedly Kwon’s second failed attempt at launching an algorithmic stablecoin, though his first effort saw losses in the range of tens of millions of dollars, rather than tens of billions.

But Kwon is already on to his third attempt at launching his own cryptocurrency, and investors are jumping back in with him. The government, however, likely won’t be as forgiving.

A spokesperson for the company declined to comment on the prospect of civil or criminal proceedings facing…