Do Kwon and Terraform Labs Hit with Lawsuit after LUNA Crypto Crash

Image showing the Terra company logo  -made up of a blue sphere with yellow and orange symbol resembling an eye residing within the blue sphere- being engulfed by flames.

If the Cryptocurrency world is the Wild West, then Do Kwon – CEO of Terraform Labs – is a travelling salesman peddling TerraForm’s blockchain ecosystem from place to place, manipulating experienced and novice crypto-traders alike. And much like that travelling salesman, once he’s made the sale you’ll likely never hear from him again… that is until he’s ready to sell his newest gimmick.

Many are furious about the LUNA/stablecoin crisis. From experienced investors to famous influencers to the average Joe, people have lost hundreds of thousands to the Luna cryptocurrency collapse.

For people in the throes of Luna’s demise the last couple of months may have felt endless, but it didn’t take long for some people to take action. Recently, a lawsuit was filed against Do Kwon and TerraForm Labs, along with venture capitalist members of the Luna Foundation Guard who financed the blockchain, for its reckless and negligent management of the Terra ecosystem.

Countless people have been affected by the collapse. If you feel like you have a claim, tell us your story. We’d love to fight for you! If you’re interested in learning more about this issue, keep scrolling. There’s a whole ecosystem of information to learn.

What is Luna?

Fluctuation of the stock market, the image shows a graph with red and green indicators showing uptakes and down-takes in a given grid. This grid, shown by a violet, blue, and green line, indicate a downward trend.

Do Kwon and Daniel Shin, co-founders of Terraform Labs, launched the Terra blockchain in 2019 as a way to introduce cryptocurrency into the mainstream. Do Kwon, the face of Terraform Labs, hoped to create an algorithmic ‘stablecoin’.

The Terra ecosystem is an ecommerce platform with a programmable blockchain – or digital ledger – that displays community transactions for all to see. In order for this ecosystem to stay afloat, Terra relies on its staking coin, LUNA, and USD-pegged stablecoin, TerraUSD (UST), to remain profitable and enticing.

This dual token system between the algorithmic stablecoin (UST) and LUNA is complex but the two are essentially linked. When one went down in value the other’s value went up, and vice versa. The algorithm set in place by Terraform Labs would either mint more coin or burn excess coin so that the value of UST would always be fixed at a dollar, either raising or dropping LUNA coin’s value. The dynamic between the two coins incentivized users by giving Luna its value and UST its stability.

For many, the idea of a stablecoin market provided a lot of security. This, paired with Terra’s Anchor Protocol (a high-interest savings account), incentivized investors to stake their money into the LUNA/UST platform. Do Kwon was able to fund the project, initially receiving $32 million in backing. And for a short time, Anchor delivered a 20% interest rate, yielding a significant amount for investors. But over time, this interest rate dropped and investors noticed.

How did Terra Fall?

As Anchor’s interest rate started to drop, some investors backed out of the Terra ecosystem. Initially, the algorithmic stablecoin adjusted for these losses.  

However, profits started to decrease, prices started to inflate, and due to Do Kwon’s stringent attitude to the regulations and protocols he set in place, the entire system started to crack. Do Kwon filed to dissolve the company’s business entity on April 30, 2022.

A data chart indicating the growth and decline of TerraClassicUSD to USD over the course of three months, March, April and May of 2022. For all of March and almost half of April the line indicating the price of UST remains at one US dollar but then starts to fluctuate downward until it bottoms out at a few cents by early May.

On May 9th, an unknown entity flooded the market with 192 million UST which completely lop-sided available assets and crashed the market. The fixed stablecoin had started to come undone, and investors were pulling their funds as quickly as they could. Without any transaction regulations the system became overwhelmed causing LUNA coin to hyperinflate. What was once a $1 Million dollar value was now worth only $3. By the end of the day, thousands of investors had collectively lost $45 billion in assets and savings.

Who Were Those Affected?

It only took hours, but by the eve of May 9th, 2022, billions of dollars had gone up in smoke. The crash happened so fast, barely any folks had a chance to react; those who acted quickly may have expedited the issue, leaving those in the dark even more vulnerable.

Meanwhile, Do Kwon lacked sympathy for those who were impacted by his failures. He criticized the poor on Twitter and even placed bets of up to $10 Million dollars on the demise of the LUNA coin. He had protocols set in place that would dissolve all assets in case anything ever went awry. Even so, “heartbroken” as he is by Terra’s demise, he has already proposed a bigger and better Terra 2.0. Do Kwon wants to wipe the slate clean, while taking no responsibility and no action to ease the pain his failed Terra venture caused so many people.

What’s Next?

Do Kwon and his team of backers are facing an upcoming war of legal troubles. Finally, all those affected by the Terra collapse have something to root for as investigations into Do Kwon, Terraform Labs and other Terra-related entities come to light.

For suspicion of conspiracy, racketeering, and deceiving consumers on the stability of his “stablecoin,” Do Kwon will have a lot to answer for. Likewise, the public needs a lot of answers.

This is an important fight for all those involved. If you’ve been affected but don’t know where to begin looking for help, start with us! Contact Shub Law today.

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