After months on the run, Do Kwon, disgraced founder and former CEO of Terraform Labs, creators of collapsed crypto tokens Terra USD (UST) and Luna (LUNA), was arrested by the Police in Montenegro.
Terra-Luna Founder Do Kwon Detained In Montenegro, Awaiting Extradition to South Korea
On Thursday, Kwon and an unnamed South Korean citizen were detained at the airport in Montenegro’s capital Podgorica after attempting to travel to Dubai using counterfeit passports. The next day, the country’s Internal Affairs Minister Filip Adžić stated on Twitter that a man believed to be Do Kwon was apprehended and taken to a prosecutor’s office on charges of document forgery.
Does Kwon was identified after Interpol ran a fingerprint match? South Korea’s Ministry of Justice confirmed the arrest of the crypto fugitive and his unidentified partner and said they will be extradited to the country under the European Convention on Extradition treaty, of which South Korea and Montenegro are members, to face criminal charges.
Korean officials said both men were hiding in Serbia after escaping from Singapore, where Terraform Labs was based, later moving to Montenegro after authorities identified their location and asked Serbian officials to detain them. Before they were taken down, the duo was planning to fly to Dubai from Podgorica Airport under a fake alias and Costa Rican passports.
History of the Terra/Luna Collapse and Crypto Winter of 2022
Do Kwon is singlehandedly responsible for starting the long “crypto winter” of 2022 which affected millions of retail crypto investors? The events leading up to the collapse began last January when Kwon, a Stanford University graduate, asked Terraform Labs to depeg the Terra USD (UST) stablecoin from the value of the U.S. dollar and link it to the price of his company’s native token LUNA.
Stablecoins are cryptocurrencies backed by fiat currencies like dollars, euros, or yuan and are always supposed to maintain parity with the supporting asset. As a dollar-denominated stablecoin, UST was expected to maintain a 1:1 ratio with USD. The tokens are widely used in the market to trade highly volatile cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH).
LUNA and UST were once among the top ten cryptocurrencies by market value.
Kwon was overconfident in LUNA, which was backed by $1.5 billion in Bitcoin (BTC) held by Terraform Labs under its reserves. He also believed that the cryptocurrency would only rise in value as Bitcoin had reached an all-time of $69,000 three months prior.
Kwon was regarded as an important figure in the industry and was very active on Twitter. He even had an army of devoted followers that called themselves the “Lunatics”.
However, after Bitcoin started to drop in May, LUNA began its descent, leading to UST breaking its dollar peg and plunging. The event led to Terra investors losing over $40 billion and starting a chain of events that caused several industry giants to fall.
American crypto lender Celsius and Singapore-based crypto hedge fund Three Arrows Capital (3AC), which were heavily invested in LUNA and UST, faced a liquidity crisis that ultimately led to their bankruptcy. The Terra/Luna debacle wiped out $500 billion from the crypto market. The crash was so massive that the industry continues to reel in its shadow a year later.
Soon after, Terraform Labs shut down its offices in Singapore, and Do Kown went into hiding. South Korean authorities charged the founder and five of his associates with fraud and breaches of the country’s capital markets law.
He is also wanted by the U.S. Securities and Exchange Commission (SEC) for securities fraud. In September, a South Korean court issued arrest warrants against the executives. The Singapore Police attempted to detain Kwon at his residence in the city-state, but he was nowhere to be found.
In October, the crypto fugitive went on Twitter to deny the charges and claimed allegations against him were “politically motivated”. Kwon repeatedly said he was not on the run and was willing to cooperate with authorities. But he never revealed his whereabouts due to concerns it would affect his family’s safety.
Things went so far that the South Korean government suspended his passport and asked Interpol to issue a red notice against the disgraced crypto founder so that other countries would be allowed to arrest him.
A Glimmer of Hope for the Crypto Market
Does Kwon’s arrest mark a significant moment in crypto history as many bad actors in the industry that took advantage of the market are finally being brought to justice?
The crypto winter started by Kwon deepened in November when FTX, a crypto exchange started by another disgraced former billionaire Sam Bankman-Fried, went bust after mismanaging $10 billion worth of customer and investor funds. Bankman-Fried was arrested in December and is currently under house arrest awaiting trial in the United States.
The markets have slowly started to return to their former glory. Recent bank failures in the United States and Europe have given the crypto market a push to the upside, a much-needed relief for millions of investors that have been suffering over the past year.