About Do Kwon
Do Kwon, cofounder of Terraform Labs, pleaded not guilty in a Montenegro court in September 2023 to charges of using forged passports from Belgium and Costa Rica, according to Bloomberg News. His defense lawyer proposed releasing him on bail of 400,000 euros, but the prosecutor objected, arguing Kwon and former CFO Han Chang-jun had financial means and no interest in remaining in Montenegro. Kwon had been arrested in Montenegro in March 2023 after South Korea issued an arrest warrant for him in September 2022. The U.S. Securities and Exchange Commission (SEC) charged Terraform Labs and Kwon in February 2023 with defrauding investors, alleging they promoted their crypto by claiming the tokens would increase in value and that Kwon secretly arranged for a third party to purchase massive amounts of TerraUSD (UST) to restore its dollar peg in May 2021, while publicly touting the restoration as a triumph of decentralization.
In interviews following the collapse of the Terra ecosystem, Kwon has characterized the event as a "massive market failure" rather than fraud, stating that he believed in the stability of UST and that his statements led users without the tools to understand the complex economic mechanisms to gain confidence in a system that ultimately failed. He has said he went into a "state of shock" when the collapse began and that he tried to help community members find jobs and funding. Kwon has maintained that the Luna Foundation Guard only held 313 Bitcoin and has denied allegations of being on the run, though he has not disclosed his location. He has stated he plans to continue building in crypto, saying, "I am but 31, and I would still love to contribute."
Source: AI-verified profile updated from Do Kwon's recent appearances.
Browse all interviews →
✨ AI-enhanced transcript with speaker attribution
D
Do Kwon0:00
Yeah, so the easy way to understand this is that we're using Bitcoin to create a decentralized forex reserve for the Terra stablecoin. So for any peg system, you generally keep a forex reserve of foreign currencies or highly liquid bonds in order to make sure you can meet short-term changes in currency demand. So the analog of this in a cryptocurrency system is exactly what we're doing with the Terra stablecoin and Bitcoin. The idea is that at any given time you can trade in a dollar's worth of TerraUSD and get a dollar's worth of Bitcoin, and vice versa. You can trade in a dollar's worth of Bitcoin and get one TerraUSD. So in our choice to choose Bitcoin, Bitcoin is the biggest and the most neutral of all the cryptocurrencies, and TerraUSD, at around 16.5 billion dollars in market cap, is currently the largest decentralized stablecoin. So it made perfect sense for the two to work together.
I
Interviewer0:54
I'm curious, I mean, why not just hold dollar-based assets? You know, I'm thinking about Tether, I'm thinking about USDC, holding some form of treasuries and short-term commercial paper. Why go with Bitcoin to sort of get to the same place?
D
Do Kwon1:10
Yeah, so the important thing to remember about Terra is that it's a decentralized stablecoin in the sense that it has no issuer. So any person can mint Terra stablecoins by burning a dollar's worth of some decentralized asset. So if you were holding some sort of centralized collateral, so it could be some bonds or Tether stablecoins or Circle or something like that, in that case, whoever is holding the largest amount of these reserves would be subject to censorship and would defeat the entire purpose of having decentralized stablecoins in the first place.
I
Interviewer1:45
Why have you been so open to talking about your intention to buy so much Bitcoin? Couldn't that essentially open you up to front-running and actually make the price of Bitcoin more expensive and increase your costs?
D
Do Kwon1:59
Sure. So one important thing to remember about what we're doing here is that this is not a corporate treasury decision in the sense that I am not buying Bitcoin. I've already donated money so that we can build up these reserves on behalf of the community, and we plan to be doing this in perpetuity. So the three billion or so that we're buying initially to bootstrap the reserves is going to be followed up by a persistent buy of Bitcoin through seigniorage in the sense that every time that UST is minted, there will be new Bitcoin that is added to the reserves. And given that this is a significant enough argumentation to the existing model such that it impacts users of TerraUSD, we felt like the communities of our users had a right to know in full transparency in terms of what was going on.
I
Interviewer2:51
And something else that caught my eye, so this is an algorithmic stablecoin. I'm hoping you can very quickly walk us through that because we are running short on time. But I mean, if we think about other examples of algorithmic stablecoins, Iron Finance comes to mind, for example. That stablecoin actually broke down a little bit, and I'm wondering what's going to distinguish UST from going the way of other algorithmic stablecoins such as Iron.
D
Do Kwon3:17
Yeah, so an algorithmic stablecoin, unlike fiat-backed stablecoins or lever-backed stablecoins, are not backed by explicit collateral. Rather, they are supported and stabilized by algorithmic incentives to stabilize at the peg. So what you get in decentralization and scalability that fully collateralized or over-collateralized models don't have, you sacrifice on sort of economic stability in the sense that if you experience a 50, 60, 70 percent drop in a currency, then in that case the stablecoin would no longer be pegged. But the weird thing about existing algorithmic stablecoin models that made the news by failing recently was that they combined weaker economic guarantees with insane, Ponzi-like APRs that just wasn't sustainable. So for Iron Finance, I think at peak they were offering something like 12,000 APR on a stablecoin that was brand new, which just absolutely didn't make any sense.
I
Interviewer4:17
Okay, so point taken. And I do want to ask you one more thing. I mean, you mentioned that the Bitcoin purchases weren't necessarily a treasury decision, but that being said, I mean, you will have one of the biggest accumulations of Bitcoin out there. I mean, at 10 billion dollars, that's more than MicroStrategy, for example. And I'm wondering if the fact that that's sort of a systemically large amount of Bitcoin, whether that gives you any pause about what the implications could be for the broader crypto ecosystem, you know, should something not great happen to UST.
D
Do Kwon4:55
Well, so I think people need to have a little bit more faith in crypto. So if you look at Bitcoin, it turns over more than 20 billion dollars per day, and I think with time it's going to be even more liquid. So even if a stablecoin were to de-peg over time and those reserves would be used to defend that peg, I think Bitcoin would more than easily be able to absorb the Bitcoin that enters the market. And we have strong confidence that UST is going to continue to grow and stay stable. So on that, we think it's going to be positive.
I
Interviewer5:31
Do you think somebody who's watching this right now who may be new to the crypto space might be really confused about what's going on here? And I'm wondering how you see this becoming adopted by large masses of not just people but companies and governments, if indeed to a lot of people it's just really, really complicated.
D
Do Kwon5:59
Yeah, so I mean, currency systems fundamentally are supposed to be complicated if you dig into how they work in the background, right? And it's because there's a lot of dynamics at play. But at the end of the day, the only thing that the end user needs to take away is that you have a digital native dollar that is stable, is fully decentralized, that doesn't come with the compliance overhead of fintech and neobanks. And I think that's a fundamentally good thing for the internet.
