Some liken the seemingly too-good-to-be-true 20% interest on the Terra blockchain’s lending-and-borrowing program to one big Ponzi scheme that will ultimately collapse under its own weight.
At the center of it all is Kwon, the 30-year-old “King of the Lunatics.” This year, a group led by Kwon wowed the laser-eye crowd by buying more than $1.5 billion in Bitcoin to help prop up Terra, with plans to purchase as much as $10 billion worth of the token.
“Right now, my role in the crypto industry is a little polarizing,” Kwon, co-founder of Terraform Labs, said in an interview with Bloomberg.
Securities and Exchange Commission, suing the agency over its scrutiny of software developed by Terraform that allowed people to create, and speculate on, tokenized, synthetic stocks and ETFs without ever owning the actual thing.
So it’s perhaps no surprise that Kwon waves away the accusations of Terra being a Ponzi scheme careening toward disaster.
The Luna Foundation Guard, the organization buying Bitcoin for Terra, also raised $1 billion in February through a private sale of Luna tokens, with buyers including Jump Crypto, Three Arrows Capital and others.
The reason for all this breathless excitement, and a big reason why Terra has quickly become the second-largest blockchain used in decentralized finance, sounds at first rather mundane: the promise of engineering a cryptocurrency that’s worth a buck.
Stablecoins are free to roam where traditional dollars cannot: in and out of various DeFi platforms that offer users anonymity, not to mention all sorts of cutting-edge — and risky — ways to speculate on more crypto.
Issuers of the biggest stablecoins, Tether and USDC, attempt to accomplish that one-to-one dollar peg by holding real-world, dollar-denominated reserve assets such as T-bills or commercial paper.
To oversimplify, for every UST created, the same amount of value in Luna tokens is destroyed through embedded algorithmic codes, thus keeping UST at $1.
Neutrino, IRON and Basis, to name a few, have all lost their dollar pegs, some in spectacular fashion, after price declines in the stabilizing tokens.
Kwon says if anything, the risks that UST become unpegged to the dollar have increased simply because of the explosive growth of DeFi projects on the Terra blockchain.
The Luna Foundation Guard — which abbreviates to LFG, identical to another common crypto catchphrase that stands for “let’s f—ing go!” — plans to keep buying Bitcoin as a sort of backstop to help underpin UST.
For those rusty on their history: Roman soldiers ended up sacking Carthage and slaughtering many of its citizens in the Punic Wars.
On almost a daily basis, Galois sends out tweet storms criticizing Terra, detailing how a potential mismatch in supply and demand between Luna and UST could result in the failure of the mechanism keeping the stablecoin at $1.
Galois points to Terra’s annual percentage yield on deposits, currently about 19.5%, as the reason a deluge of UST supply hasn’t hit the market and threatened its $1 peg — yet.
Galois insists it only wants UST to fail, and fail soon, to prevent Terra from getting big enough to take down the crypto universe with it.
Of course, accusations of Ponzi schemes are pretty common in crypto, where there is typically no real-world cash flow or assets to back up the numbers on the screen.
While the Terra blockchain’s biggest app by far remains the Anchor protocol, he cites all the other apps being built, including Prism, which he calls “a really novel and innovative interest-rate swap protocol,” as well as gaming and cultural projects.
When he’s not working, he says he’s usually just spending some time with his wife, who recently gave birth to their first child — a daughter aptly named Luna.
Kwon also doesn’t have as much time as he once did to play StarCraft, the futuristic outer-space video game that inspired much of the terminology of his blockchain project — and inspires many of the interactions Kwon has with both fans and trolls.
So Kwon and his Terra project are adapting, too.
“It’s not without risk, right?” he told the audience in his keynote address at the conference.