Costs of Luna collapse still being counted in Korea
The collapse of Luna is starting to ripple through Korea as investors in the coin and companies associated with it add up their losses and adjust their plans.
Victims range from retail punters to some of the largest business names in the country, and the damages go from trivial to existential, though the sense is that, so far, the Luna fiasco will not be a Lehman moment and threaten crypto markets or the broader markets in a systemic way.
“I lost my entire lifesavings in just two days,” one person wrote anonymously on Bitman, a Korean blockchain community, on May 14. “I repeatedly sold Luna at a loss, bought more to lower the average price and sold it at a loss again. After losing more than 100 million won [$78,000] that I struggled to save for years, I can neither eat nor sleep. I loathe myself.”
Terra coins were algorithmically pegged to other currencies through arbitrage with Luna coins. When faith in the design evaporated in early May, Luna lost most of its value in a matter of days and TerraUSD, which is the Terra that tracks the dollar, dropped to about 10 cents.
One man, who claims to have lost 2 billion won ($1.6 million) by investing in Luna, was under investigation after showing up at the house of Kwon Do-hyeong, one of the masterminds behind the Terra stablecoin scheme.
"Kwon should officially apologize and announce some sort of plan using any means available, including using his own money," the man told the local press. "There are some people around me who have actually lost their lives."
He declined to identify himself, but had a livestream on Korea's Afreeca TV and went by the name "Chansus."
Corporate investors in the coin and Terra-related corporations, have also lost financially and possibly reputationally.
Terraform Labs, a Singapore-incorporated company formed in 2018 by the founders of the Terra system, received an estimated $150 million from a number of investment firms, including Arrington Capital, BlockTower Capital and Pantera Capital.
Kakao Ventures invested in a special purpose company established by Terraform Labs in 2018. It has not disclosed the amount it invested.
"We retrieved some of the investment, but we still have some ownership left in the company," said Jeong Ji-young, a spokesperson for the Kakao Ventures. "As it became difficult for the company's value to rise, the future of the invested funds has grown dark."
Dunamu, which operates the Upbit cryptocurrency exchange, invested in Luna through Dunamu & Partners in 2018, but it has since sold its investment.
Seoul-headquartered Chai Corporation, a payment startup formed in 2018 by Terraform Labs co-founder Daniel Shin, was initially designed to serve as a payment app for Terra, according to a presentation Kwon made at CNBC Crypto Trader in Seoul in October 2019. The service would operate on the Terra mainnet.
The plan was adjusted as there wasn't enough demand for blockchain payments, said Park Soo-jin, who works for KPR, a public relations firm, and is representing Chai Corportion, Shin and Gigi Kwon, CEO of Chai Corporation.
"Though Chai pursued numerous collaborations with Terra in the past, the partnership ended in 2020," she said, adding that the two teamed up again in 2021 to allow Chai users to make payments using Terra KRT, which is the stable coin pegged to the won. The service was available through March.
Stanford-educated Kwon Do-hyeong, 30, is also known as Do Kwon. He has pitched some revival plans following the crash. The latest, released Monday, proposes forking the Terra chain into a new chain without the algorithmic stablecoin.
"The chance of its revival is low," said Kim Hyoung-joong, a professor of multimedia security at Korea University School of Cybersecurity. "It lost trust and doesn't have funds to revive the cryptocurrencies as people won't buy them."
But Kim said its impact on the overall cryptocurrency market will be very limited.
"A cryptocurrency failed because it was designed inappropriately. Just because there was a Lime incident does not mean that people lost faith in all funds," he added, referring to the dramatic failure of Lime Asset Management.
"Terraform Labs should first regain trust before it takes any action," said Park Sung-jun, CEO at Andus, which operates the AndUsChain blockchain platform. "To gain faith, Kwon first needs to transparently explain the reason behind the crash and provide realistic compensation plans to the investors harmed.
"The incident happened because the sustainability of an algorithmic stablecoin was never verified as it's not under the inspection of any official organization."
BY JIN MIN-JI [email@example.com]