Do Kwon likely arrested in Montenegro

Terraform Labs co-founder Do Kwon [JOONGANG PHOTO]

Montenegro’s interior minister said that the country’s police had likely arrested Do Kwon, the co-founder of Terraform Labs, on Thursday in Montenegro.

Interior Minister Filip Adzic announced the arrest via his Twitter account on Thursday afternoon.

“Montenegrin police have detained a person suspected of being one of the world’s most wanted fugitives, South Korean national Do Kwon, co-founder and CEO of Singapore-based Terraform Labs,” Adzic said, adding that “the former ‘cryptocurrency king,’ who is behind losses exceeding $40 billion, is wanted by South Korea, the United States and Singapore and was detained at Podgorica airport with forged documents.”

The Montenegrin interior minister said that local authorities are working to obtain official confirmation that the detained man is indeed Kwon.

Kwon was last reported to be in neighboring Serbia, according to South Korean prosecution officials cited by Yonhap in December.

Investigators believed Kwon left Singapore in September and passed through the United Arab Emirates before moving to Serbia.

Kwon has been the subject of an Interpol red notice since September.

Kwon’s Terraform Labs is the developer of cryptocurrencies TerraUSD and Luna, whose simultaneous collapse in value in May last year wiped out about $40 billion in wealth.

TerraUSD was a cryptocurrency designed to be pegged to a fiat currency — in this case, the dollar — while its sister coin Luna was intended to serve as the primary backing asset for TerraUSD and absorb volatility.

Arbitrage between the two currencies was intended to maintain TerraUSD’s value close to a target price of $1, with users creating Luna from Terra when the latter’s price fell below $1 and vice versa when the price rose above $1.

But TerraUSD’s peg to the dollar began to break on May 7 and collapsed within a week after more than $2 billion was withdrawn from Anchor, a Terra-based decentralized finance protocol that allows users to earn interest on TerraUSD deposits and take out loans against holdings.

The dramatic fall in the price of TerraUSD also pulled down the price of Luna.

TerraUSD's market capitalization fell from a pre-collapse peak of $18 billion to $1.02 billion in just 12 days, while that of Luna fell from $40 billion to $999.13 million in the same period.

Authorities investigating the case in both South Korea and the United States have accused Kwon of orchestrating a multi-billion-dollar crypto asset securities fraud with TerraUSD and Luna, among other cryptocurrencies.

The accusations of fraud against him and TerraLabs center around whether the company’s system only worked if there were continuous buyers of Luna and TerraUSD coins, which would effectively make it a Ponzi scheme.

Terra’s savings protocol Anchor at times yielded 20 percent for people who bought TerraUSD and parked their coins in Anchor — a yield which many critics described as unsustainable.

BY MICHAEL LEE [lee.junhyuk@joongang.co.kr]