How This Man Just Caused a $45 BILLION Crash [Terra Luna]

hi welcome to another episode of cold fusion this is financial freedom you have been dreaming of it ever since you started your working career almost 10 years ago now one day your friend introduces you to an interesting website from a company called terraform labs it's low risk investment where you can earn 20 a year on your deposits if you just put in 500 from every paycheck you'll make some decent returns but you're skeptical and you dismiss it but later when you think about the money that's left sitting in your savings account getting eaten away by inflation you think to yourself maybe this is worth a shot the website states that it's using a technology called stablecoins you don't really know what that is but your friend says it's pretty much risk-free but little did you know that in just two years you would lose half your savings this is a story that's painfully familiar to millions of others around the world in total 45 billion dollars worth of everyday people's money was lost in less than a week around the internet people are calling this the 2008 crisis of crypto and now you're right in the middle of it how could this have happened to you this is a horror story that many are living right now fusion tv this is dokwan he's the one in charge of the company that caused your financial demise born in south korea in 1991 do kwan was a bright kid and went on to study computer science at stanford graduating in 2015. he briefly worked for apple and microsoft reportedly only for a few months each he would return back to south korea in 2015. it would seem that working for big tech wasn't enough for kwan he wanted to be big tech itself but in the crypto space not long after this he would hear of a stablecoin project called basis he looked into the idea of stablecoins and saw them as the next big thing in finance the idea is that these tokens would maintain a one us dollar value this is called a peg essentially the tokens would act like a digital dollar stable coins are for people that still want to enjoy the benefit of crypto but without all the wild swings in price an interest rate system also makes sure that depositors get rewarded for keeping their money in the system to get his idea off the ground it wasn't going to be easy for quan he needed a lot of funding to get started stablecoin tokens are usually backed by securities like treasuries and cash reserves or with some combination of other crypto people really want to have confidence in knowing that a stablecoin is worth what it says it is instead of a traditional backing with something like cash terror used an experimental algorithm to help back the system but more on that shortly after a failed startup in january of 2018 dayquan and co-founder daniel sim came up with the idea for terraform labs eventually terra managed to get off the ground with the support of 15 e-commerce companies in asia here is dou kwon talking about his ties with the e-commerce platform chai in 2019 but in the back end is where the real magic starts to happen and i contend that terra solves two of the biggest roadblocks to the adoption of digital payments in asia and the rest of the world up up to today we've had 430 000 uh shoppers over the chai payment gateway most of them coming in the last month and we've processed nearly 2 million transactions up to date in terms of daily active users terra and chai has already surpassed some of the most popular tokens in 2019 kwon was named in asia's forbes 30 under 30. but all was not as it seemed on the surface according to some staff that i talked to with interro labs do kwan was narcissistic but charismatic he would micromanage and sometimes verbally abuse teralab staff within one to two years virtually all the core people left most with legal disputes as this happened terra labs increasingly became a one-man show with dokwan making all the decisions kwon's decisions would eventually lead to the collapse and a loss of billions and time again low-risk so-called algorithmic stable coins have been tried with catastrophic results take mark cuban for example he lost money on the now dead titan iron stablecoin so dokwan had a lot of work to do to get people trusting and using terror critics of stablecoins have called them quote modern day pyramid schemes with people like senator elizabeth warren calling for regulation this next section may seem a little bit in the weeds but bear with me because it's integral to understanding what later went wrong the main focus of the teralabs blockchain was their token terra usd or ust which would stay stable at one us dollar's worth of value the terra system used two tokens to function ust was to remain stable while the other token called luna was meant to absorb volatility one can buy ust on market exchanges or through exchanging luna within the system at all costs the system tries to keep everything in equilibrium there were also financial incentives for people to trade and swap lunar and ust in whichever direction helps the system stay in equilibrium an algorithm is in charge of managing all of this and making sure that it all works there's a major problem though the system is designed to do this no matter what happens to ust's market price on other exchanges if the peg begins to slip risk begins to pile up people may jump out of the ust token into other stable coins which causes the lunar token to fall the algorithm then prints more luna in order to keep the peg so the price drops even more this is okay for small dips but if the selling pressure is too much then there can be a feedback loop of people selling and the system printing evermore luna to try and keep the balance this is called a death spiral but this wasn't all there was yet another issue with the system it had grown too fast investors who deposited ust into the terror system were receiving roughly 20 yield this high return was what attracted many people to the service in the first place and terror grew rapidly because of it but perhaps too rapidly instead of the market deciding interest rates do kwan wanted this rate fixed to achieve this it was partly subsidised by the company however as demand grew more and more money needed to be paid out around seven million dollars was paid out in interest every day dokwan also made a fatal mistake of letting people take out their deposits at any time perhaps what he didn't foresee is that the rapid growth meant that the system was extra vulnerable to mass withdrawals all at once unknowingly he had just caused both major elements that would contribute to the disaster the rapid and massive growth thanks to the attractive fixed 20 return and the risk of mass withdrawals many skeptics criticized terror stating that it was unsustainable but devout supporters or lunatics as they called themselves would dismiss the criticism do kwan was now the leader of a devout group he had made people a lot of money and it seemed like his reinvention of finance was on its way to changing the world it was a safe crypto bank with a higher interest rate and large adoption in 2021 as the wider crypto market began to turn south the yields and other stable coins and tokens began to fall but dokwan's fixed 20 yield on ust became increasingly attractive and more people piled in by april of 2022 the lunacoin was trading at over 100 us dollars a token and the whole system was valued at 45 billion dollars the terra luna system was being used in hundreds of decentralized apps and millions of payments around the world with terror it finally looked like decentralized finance had finally gone mainstream it should be noted that although the terror system was marketed as decentralized and coin holders did have voting rights in reality it was the opposite according to insiders dokwan was a dictator and made all the final decisions and influenced the direction of the company effectively it couldn't be more centralized to fortify confidence in the system terror labs built up resistance to unexpected shocks they dedicated a reserve of 450 million dollars and one billion dollars worth of bitcoin to defending the peg at this point terra had the fourth largest market cap in the whole of crypto they looked unstoppable as the use of terror expanded and institutional investment arrived quan got more cocky i wonder how many of these companies you think are entering the space just because it's hot and there's a lot of funding versus the ones that will still be here you know like two to five years later 95 were gonna die yeah ninety-five percent are back tonight uh but uh yeah there's also entertainment from watching companies tattoo there's entertainment oh man that's that's that's so evil at least you get to learn from it right on twitter he was also showing his confidence the twitter user our god bet one million dollars that in one year from now tara luna would essentially collapse the stakes got raised to 10 million dollars and put on the blockchain for everyone to see but behind the scenes things were already going awry according to documents filed by kwon at the supreme court of south korea's registry office kwon filed to dissolve the korean company's entity on the 30th of april 2022 and was granted approval on the 4th of may 2022 just days before the crash for those that had put their hard earned money into the system this should have been a concern but they either weren't paying attention or the pull of financial freedom and peace of mind was too strong this event should have been the final red flag [Music] beginning on the 9th of may 2022 people began to notice something strange the one dollar peg promised by luna on their ust token began to come undone headlines were made when ust began to break from its secure peg of one us dollar the disaster began to kick off with a series of major withdrawals from the interest yielding ust system according to coindesk the amount was around 4 billion a single wallet also dumped 84 million worth of ust on the ethereum blockchain and 108 million dollars on the binance crypto exchange these led calls from within the community that the dpec was a coordinated attack but people couldn't worry about that now as things went from bad to worse ust starts trading at 90 cents then 85 cents the peg was really failing over the coming hours panic sets in and some users pull their money out conspiracy theories begin to take root online what exactly is happening here then even more users try to pull out their funds this time all at once the network becomes congested the luna foundation guard an organization that's supposed to support the terror ecosystem announces a 1.5 billion emergency loan to restore the peg to the us dollar but it doesn't work ust falls to 50 cents then 20 cents a far cry from its stable one dollar promise luna is also crashing it's seventy dollars then twenty dollars then ten dollars the hyper inflation of luna was happening right before everyone's eyes luna collapsed further to five cents now virtually zero unbelievable ust now sits at a measly 10 cents the collapse wiped out almost 45 billion dollars of market capitalization luna went down from an all-time high of 119 to virtually zero the us government gets involved immediately after the crash treasury secretary yellen points to the ust disaster and demands legislation by the end of the year on the 13th of may terraform labs halts the terror blockchain the company's attempts to stabilize the system also fail quan takes to twitter saying he's heartbroken by the events nobody has ever seen anything like this before a top five crypto project going to zero so quickly it was a true lehman brothers moment for the crypto community so who did it according to some insiders i've talked to those within teralabs believed that this was a coordinated large-scale attack which is viewable on the blockchain from on-chain data one or two actors bought a massive amount of ust with bitcoin and then dumped that ust on the market these actors did so even at a loss just to bring the system down lucas our tomorrow head of research at into the block told fortune quote the large withdrawals appeared to be timed precisely at the moment when luna was most vulnerable end quote he checked the data himself and said that it all lines up and quote it is certainly suspicious i think we are beyond the point that this idea of an attack is just speculation unfortunately for those involved the pieces were in place and the dominoes were set up to fall once the price began to drop people panic sold and the algorithm tried to print more luna reducing the price even further in a runaway death spiral many suspect that the perpetrator was a large hedge fund but solid evidence is yet to be found this may change as the investigation continues there may be some factors that we don't know about that may come to light did the market collude to make this crash happen this appears to be a hedge fund we don't know all people are naming the hedge fund but i won't the trade was instigated by one person and then we don't know if the momentum was created by collusion conspiracy theories would say yes because it's a massive trade there was a bit over a billion dollars in capital and then the market is saying that then they ended up going short ust so that they took a massive risk to achieve what they did i mean people are saying they made 950 million dollars when all was said and done one million dollars invested in terror just a week before the crash is now worth a measly three dollars lives were ruined and dreams crushed all over the internet there were devastating stories of luna holders youtuber ksi lost 2.8 million dollars another youtuber karl roonfeld lost 1.4 million but everyday people were also harmed in this reddit became populated with tragic stories one user writes i lost over 450 000 us dollars i cannot pay the bank i will lose my home soon i'll become homeless suicide is the only way out for me it is truly sad to consider those who have been affected due to the magnitude of the disaster dou kwan has been likened by journalists to elizabeth holmes of theranos especially in his native country of south korea but in a twist things may be a bit more nuanced it is true that the success got to dokwan's head he thought he was better than everyone else and took decisions solo but according to insiders his decisions were risky and ultimately hurt people but he didn't want to defraud anyone he loved control and power but he had a reputation to keep and cheating people would destroy that ryan silkas founder and ceo of mesurai states quote what happened to terror wasn't fraud it was overconfidence in the investors of last resort who had already backed the project and reckless growth at a time when the market was slowing down end quote so people may have that sentiment but ultimately i think the blame cannot land on anyone else but do kwan kevin zhao of galeos capital on twitter predicted the exact crash but dokkon dismissed him a perfect example of his careless attitude others also predicted the crash here's an eerily accurate prediction made in december of 2019 at a blockchain conference i think that um the biggest risk the thing that could go really massively arrive with stable coins that could be terrible for the crypto world overall is if there's an algorithmic staple coin that has no backing that just has a sort of algorithmic mechanism um but but there there's a category called algorithmic stable coins i would put terra and cello in this category there are a number of others basis was like this and they never launched um the thing that could happen is one of those could launch and be marketed very effectively and be significantly adopted it could even happen in a market where people really really need a stable currency and don't have one and that's why it gets massively adopted people who are not crypto speculators people who just want to preserve their savings if that protocol then blows up economically and falls apart and the price of that goes you know down half or close to zero military backlash imagine if we were sitting here today talking about how great our stable coins were where it had already been the case that like a billion dollar stable coin had collapsed and lots of innocent people had lost their money you know it would be a very different situation um and and that really could happen there are economic experiments being run with some stable coins that i believe personally could go that direction and so i think the worst thing that could happen is if one of those gets really big before it fails yeah why people will use that tara will tell you that like hundreds of thousands of people in korea are using it it's also possible that the whole crash could have been avoided if those 20 yielding deposits in ust had a withdrawal waiting time maybe seven days or a month so that panics like this wouldn't be possible as for the future of stable coins trust is broken even other projects that are more responsible than do kuan's was are going to take the heat and it's going to take a lot of faith for people to trust them again the saddest thing in all of this is that stable coins were seen as safe people were using them as a bank account to store their savings and earn interest when a regular bank wouldn't provide that much these people were actively trying to avoid the crazy speculation of the crypto market instead they found themselves in the biggest crypto disaster of all to anyone watching who was affected i hope you do find some solace somehow for everyone else watching from the sidelines may this be a lesson in every investment no matter how safe it seems if there's a counterparty risk you should follow the number one rule of investing only put in what you're prepared to lose so what happens to dokwan well investors are very angry and they're going to be wanting some answers perhaps there'll be a class-action lawsuit but for now we just don't know just as i was finishing up this episode dokuan announced terra 2.0 but the reaction was overwhelmingly negative so i'd like to hear from you guys did any of you lose any money would you ever trust stable coins again let me know your thoughts in the comment section below so if you did like this episode instead of subscribing search or scroll through the cold fusion channel and take a look and see if there's another topic that you'll be interested in there's plenty of stuff on here alright so thanks my name is dagogo and you've been watching cold fusion and i'll catch you again soon for the next episode cheers guys have a good [Music] cold fusion it's new thinking

Channel: ColdFusion

Views: 3,449,678

Keywords: Coldfusion, TV, Dagogo, Altraide, Technology, Apple, Google, Samsung, Facebook, Tesla

Id: 3KZY41SqaTI

Length: 19min 44sec (1184 seconds)

Published: Fri May 20 2022