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Do Kwon, a South Korean entrepreneur, described the cryptocurrency he created in 2018 as “my greatest invention.” In countless tweets and interviews, he trumpeted the world-changing potential of the currency, Luna, and brought together a group of investors and supporters that he proudly called “Mad”.

Mr. Kwon’s company, Terraform Labs, has raised more than $200 million. investment firms Like Lightspeed Venture Partners and Galaxy Digital to fund cryptocurrency-built crypto projects, even if critics question their technological underpinnings. Luna’s total valuation exceeded $40 billion, creating a frenzy of excitement that swept day traders and startups and wealthy investors alike.

Mr. Kwon worries regiment: “I do not discuss the poor.”

But last week, TerraUSD, another currency developed by Luna and Mr. Kwon, suffered a phenomenal collapse. Their meltdowns had a domino effect on the rest of the world. crypto market, Lowering the price of Bitcoin and accelerating the $300 billion depreciation in the crypto economy. This week, Luna’s price remained close to zero, while TerraUSD continued to decline.

The fall of Luna and TerraUSD offers a case study of crypto hype and holding the bag when everything crashed. Mr. Kwon’s rise was driven by reputable financiers who were willing to support highly speculative financial products. While some of these investors have made substantial profits by selling their Luna and TerraUSD coins early, retail traders are now grappling with devastating losses.

Pantera Capital, a hedge fund that invests in Mr. Kwon’s efforts, made a profit of nearly 100 times its initial investment after selling about 80 percent of its stake in Luna last year. said Paul Veradittakit, an investor in the firm.

Pantera turned $1.7 million into $170 million. Mr Veradittakit said the latest accident was “unfortunate”. “Many retail investors lost money. I’m sure many institutional investors are like that.”

Mr. Kwon did not reply to messages. Most of his other investors declined to comment.

Kathleen Breitman, founder of the Tezos crypto platform, said that the rise and fall of Luna and TerraUSD was due to the irresponsible behavior of the institutions supporting Mr. “You’ve seen a bunch of people trying to trade their reputations for quick buck,” she said. She now, she said, “trying to comfort people who see their life savings slipping away from them. It has no defense.”

A 30-year-old graduate from Stanford University, Mr. Kwon founded Terraform Labs in 2018 after working as a software engineer at Microsoft and Apple. (He had a partner, Daniel Shin, who later left the company.)modern financial system” where users can perform complex transactions without relying on banks or other intermediaries.

Mr. Shin and Mr. Kwon started marketing the Luna currency in 2018. Terraform in 2020 started to offer TerraUSD, known as stablecoin, is a type of cryptocurrency designed to serve as a reliable medium of exchange. Stablecoins are typically pegged to a stable asset like the US dollar and do not fluctuate in value like other cryptocurrencies. Traders often use stablecoins to buy and sell other riskier assets.

But TerraUSD was risky even by experimental crypto technology standards. Unlike the popular stablecoin Tether, it was not backed by cash, treasury or other traditional assets. Instead, it derived its default stability from algorithms that tied its value to Luna. Mr. Kwon used two related coins as the basis. more elaborate borrowing and lending projects in the dark world of decentralized finance or DeFi.

From the very beginning, crypto experts were skeptical that an algorithm would keep Mr. Kwon’s twin cryptocurrencies stable. In 2018, a report outlining the stablecoin offering reached the desk of Cyrus Younessi, an analyst at crypto investment firm Scalar Capital. Mr. Younessi sent a note to his boss explaining that the project could enter a “death spiral” where a drop in Luna’s price would also drag the stablecoin down.

“I was like, ‘This is crazy,'” he said in an interview. “This obviously doesn’t work.”

The voices of the protesters rose as Luna understood. Charles Cascarilla, founder of Paxos, a blockchain company offering a competing stablecoin, raise suspicion About the technology underlying Luna in an interview last year. (Mr Kwon responded by taunting him on Twitter: “Wtf is Paxos”) Hedge fund manager Kevin Zhou, guess over and over He said the two currencies would collapse.

However, venture investment is still fund, capital Projects built on the technology underlying Luna, such as services for people to exchange cryptocurrencies or lend and lend TerraUSD. According to PitchBook, which tracks the funding, investors including Arrington Capital and Coinbase Ventures have raised more than $200 million between 2018 and 2021.

In April, Luna’s price rose from under $1 in early 2021 to a high of $116, and generation A community of retail traders has formed around the coin, with crypto millionaires hailing Mr. Kwon as a cult hero. Mike Novogratz, CEO of Galaxy Digital, which invests in Terraform Labs, announced his support. Luna themed tattoo.

Operating out of South Korea and Singapore, Mr. Kwon praised social media. He announced his name in April. newborn daughter Lunatweeting, “My favorite work is named after my greatest invention.”

“What draws people in is the cult of personality — the flamboyant, arrogant, Do Kwon attitude –” said Brad Nickel, host of the cryptocurrency podcast Mission: DeFi.

Earlier this year, a non-profit organization also led by Mr. Kwon Sold $1 billion Luna to investors.

At the same time, some venture capital firms supporting Mr. Kwon began to worry. Hack VC, a startup focused on crypto, sold its Luna tokens in December, in part because “we felt the market needed a wider pullback.”

Martin Baumann, founder of Hong Kong-based venture firm CMCC Global, said his company sold its shares in March at around $100 per coin. “We have received increased concerns, both technically and from a regulatory perspective,” he said in an email. (CMCC and Hack VC declined to comment on their profits.)

Even Mr. Kwon has publicly referred to the possibility of a crypto collapse. joke that some crypto startups may eventually fail. He said he found it “fun” to watch companies collapse.

Last week, falling crypto prices and tough economic trends combined to create a panic in the markets. Luna’s price has dropped to almost zero. As critics predicted, the TerraUSD price has slumped together this week, dropping from $1 to as little as 11 cents. Within days, the crypto ecosystem that Mr. Kwon had built was essentially worthless.

“My heart is broken by the pain my invention has inflicted on all of you,” he said. tweeted out last week.

Some of Mr. Kwon’s big investors lost money. Changpeng Zhao, CEO of crypto exchange Binance, which invests in Terraform Labs, I said The firm had bought Luna for $3 million, which reached its peak value of $1.6 billion. However, Binance never sold its tokens. Luna assets are currently worth less than $3,000.

That loss is still just a drop in the bucket for a company as large as Binance, whose US arm is worth $4.5 billion.

“Most VCs have the analysts they need to evaluate these things,” Mr Nickel said. “They may have thought they could make money off the back of the retail.”

Much of the pain of the collapse was felt by ordinary traders instead. over reddit forum For Luna evangelists, users have shared lists of suicide hotlines as people pouring their savings into Luna or TerraUSD have expressed their desperation.

The crash also devastated enthusiasts who are starting new companies using the crypto infrastructure developed by Mr. Kwon.

Neel Somani, 24, quit his job as a quantitative researcher at the hedge fund Citadel in February. a project Linking Luna’s underlying blockchain to another crypto system, Ethereum.

In April, Mr. Somani joined Terra Hacker HouseA one-month program in a Chicago office, sponsored by Terraform Labs and its investors, designed to incubate projects built on Mr. Kwon’s technology. Within weeks, Mr. Somani committed $10 million in venture financing worth $65 million to his project Terranova. He said he was close to hiring three employees, and 40 of his clients were excited about the idea.

After Luna and TerraUSD crashed, Mr. Somani and other hackers initially thought that Mr. Kwon and his associates could turn things around. But last Tuesday, Mr. Somani realized it was over and was relieved that he had not yet accepted the funding. He said it hasn’t bothered him since he’s been making money on other risky stocks and crypto bets.

Over the past week, the tables in the hacker’s house have been empty. A Telegram group called Rebuilding Terra, which has around 200 members, is actively discussing how to recover projects and funds.

Mr. Somani is optimistic. “For those of us who are crypto founders, the banquet and famine mentality really comes naturally, and maybe that’s what draws us to the community,” he said.

On Thursday, it plans to unveil its obsolete technology on the hacker house’s demo day. Most of the other bands left the program, so he said he expected less competition for the $50,000 first prize.

“In US dollars,” he said. “I asked.”

Kirsten Noyes contributed to research.