Terra Luna Investors Have Become Poor the Way Do Kwon Describes His Critics

Summary

The Terra Luna cryptocurrency's dramatic fall from a high market value to near worthlessness has led to significant investor losses and scrutiny of its CEO Do Kwon, raising questions about whether it was a Ponzi scheme.

Abstract

The cryptocurrency market, including Terra Luna, has experienced a catastrophic decline, with Terra Luna's value plummeting from $119.18 to almost zero, resulting in substantial financial losses for investors. This collapse has sparked debate over whether Terra Luna functioned as a Ponzi scheme, where early investors were paid with funds from new investors. The downturn was exacerbated by changes in the Anchor Protocol's interest rates, which had previously offered a fixed 20% return. As confidence waned and large stakeholders exchanged their TerraUSD for other cryptocurrencies, the Luna coin, designed to maintain TerraUSD's peg to the US dollar, failed, leading to a total loss of investment for many. CEO Do Kwon, once known for his confrontational tweets, has become notably subdued, proposing a 'Revival' plan for the Terra ecosystem while facing criticism and comparisons to his previous involvement with another failed stablecoin, Basis Cash.

Opinions

The article suggests that the collapse of Terra Luna and its associated stablecoin, TerraUSD, has led to severe financial consequences for investors, some of whom have expressed thoughts of suicide due to their losses.
Criticism is directed towards Do Kwon, Terra Luna's CEO, for his previous arrogance and lack of empathy towards his critics, which starkly contrasts with his current, more humble demeanor following the collapse of his cryptocurrency.
The author implies that there may have been characteristics of a Ponzi scheme in the operation of Terra Luna and its associated Anchor Protocol, given the high, fixed interest rates offered initially and the eventual unsustainability of these rates.
There is an implication that Do Kwon's management and decision-making are at least partly responsible for the collapse, with some investors feeling misled by the promises of high returns and stability.
The article conveys skepticism about Do Kwon's ability to revive the Terra ecosystem, especially in light of his previous failed project, Basis Cash.
The author suggests that the situation has flipped from a period when Do Kwon was viewed as a successful entrepreneur worshiped by his followers, to one where he has become the target of scrutiny and resentment for his role in the collapse.
The piece highlights a sense of betrayal felt by investors who once supported and believed in Do Kwon and his vision for Terra Luna, now facing financial ruin.

From its high of $119.18 to almost zero, some investors are losing hope they will recover their money

Not Do Kwon — Photo by RODNAE Productions: Gif by Author using Canva.

Trigger Warning:

The US National Suicide Prevention Lifeline is 1–800–273–8255. The Trevor Project, which provides help and suicide-prevention resources for LGBTQ youth, is 1–866–488–7386. Find other international suicide helplines at Befrienders Worldwide (befrienders.org).

To say it's been a tough week for crypto is an understatement, it was a bloodbath. When the smoke cleared out, the crypto market lost a trillion dollars in value, wrap your head around that figure, $1,000,000,000,000.

Bitcoin can hardly be at the $30,000 level, and almost all the coins are down.

But the biggest downfall is reserved for Terra Luna, its CEO Do Kwon is under scrutiny.

And the tone of his tweets lacks the vitriol he was known for, he doesn’t call out his critics right now, and he is starting to sound like a meek lamb as he tries to salvage what is left of his billion-dollar crypto empire.

Was it a Ponzi scheme?

Ponzi schemes come in different forms, and there will always be people who would be sweet-talked to by scammers.

Here’s a definition by the US government of a Ponzi scheme.

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves.

Well, I will leave it for you to decide if Terra Luna was a Ponzi scheme.

Here’s how people who invested their money in TerraUSD make money. TerraUSD is a stable coin which means it is tied up with the USD (US dollar). It has a 1:1 conversion, meaning for every TerraUSD you have, its value is $1 because it is pegged to the USD.

And to make money you stake your TerraUSD into the Anchor Protocol, think of it as a bank that offers a high-interest rate of about 20%, so for every dollar you deposit, you earn 20 cents.

And because there’s very little you can do with TerraUSD you put it in the Anchor Protocol and watch it grow, and every investor gets their money in the same way a Ponzi scheme works in the beginning, everyone is happy.

Until Anchor Protocol changed its rules, now instead of a fixed ROI of 20 percent, it now uses a variable interest, so nobody knows what the rate would be, again think of it as a bank, the only way banks make money is to lend money if there are borrowers and in the case of the Anchor Protocol there were far fewer borrowers.

This made big TerraUSD stakeholders exchange the supposedly stable coin for other coins, causing its sister coin the Luna which was supposed to be the buffer that ensures that the TerraUSD will always be pegged to the USD to collapse and become a worthless coin.

The Luna, which only in April 2022 was trading at $119.18, is now worth close to zero. In layman’s terms, if you invested $1,000 in Luna a year ago, it would have been worth 6x-7x by April 2022, but today all that money you invested in Luna is worthless.

Opinion | Crypto winter

Terra Luna Investors Have Become Poor the Way Do Kwon Describes His Critics

From its high of $119.18 to almost zero, some investors are losing hope they will recover their money

Was it a Ponzi scheme?

Final words

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