Dialogue with Do Kwon: Escape and Regret After Hitting Rock Bottom

Author: Laura Shin

Compiled by: Colin, SevenUpDAO Alumni Association

Since the collapse of Terra in the spring, people have become very concerned about what exactly went wrong and have developed a keen interest in Do Kwon.

In September, when South Korea issued a warrant for his arrest, the case escalated. Reports suggest that he may no longer be in Singapore, and even Interpol may now be searching for him. I initially thought Do would not speak to the media due to his legal troubles, but he surprised me last week by agreeing to participate in the show.

I approached this interview with an open mind, primarily intending to reveal more information for legal experts to assess these issues. If I felt he was not answering my questions, I would continue to press until I received satisfactory answers.

As he himself stated in the interview, transparency and information are important, and I hope this interview helps in the effort to understand what happened with Terra.

Allegations from South Korea

Laura Shin: Terra's UST and Luna may have caused investors losses of up to $60 billion, and South Korea has issued a warrant for your arrest, with Interpol also seeking you. Why haven't you returned to South Korea?

Do Kwon: Let's clarify the situation. To my knowledge, Interpol has not made a clear statement on its website; South Korea has simply interpreted the notice in its own way. Secondly, I have not lived in South Korea since the end of last year, so saying I should return to South Korea is inaccurate; it should be said that I might travel to South Korea.

Laura Shin: Your arrest warrant and allegations are based on South Korea's capital markets law. How do you view these allegations?

Do Kwon: South Korea's capital markets law is somewhat akin to financial regulation. The authority in this area is called the Financial Services Commission (FSC).

I think, compared to similar committees in the U.S., it is a merger of the SEC and the CFTC, but it is more responsible for designing the financial regulatory system rather than enforcing it. The South Korean government has previously stated that cryptocurrencies are not securities, and they have a different definition from the U.S.

For this reason, I believe cryptocurrencies are not within their jurisdiction. So I am a bit disappointed with their decision; this should be the purview of the legislative body, and financial regulatory agencies should not interfere too much.

Laura Shin: So you believe the arrest warrant from them is illegal, right?

Do Kwon: I have not seen an accurate copy of the arrest warrant; all the data I have comes from the media, so I think there is a lot of contradictory information.

The South Korean government's previous stance has always been that cryptocurrencies should not be regulated by capital markets, just as they are not securities. The government has previously expressed encouragement for the growth of our digital assets, so I find it hard to believe that these allegations are legitimate and supported by the political system.

Laura Shin: I noticed that in August you stated you would actively cooperate with the South Korean government, but after the arrest warrant was issued, your attitude changed, so you are no longer cooperating, right?

Do Kwon: No, we are still cooperating with the investigation. For example, we have been producing exact documents as requested by the South Korean prosecutors for various types of clarifications and supporting documents. We have been cooperating with all document requests.

Whereabouts

Laura Shin: You have claimed on Twitter that you are not running away or hiding, but major media outlets believe you are no longer in Singapore. So where exactly are you?

Do Kwon: I have read all the allegations about me being on the run, and they think I left Singapore because of the collapse in May. But that is absolutely not true.

The main reason I do not want to talk to the media about my location is that during the collapse in May, I faced many threats to my personal safety, such as someone breaking into my apartment building. Some of them were journalists, while others were just ordinary people. I feel they pose a significant threat to my personal safety and also invade my privacy, infringing on my personal interests.

I do not want to disclose where I live simply because if my location becomes widely known, it would be nearly impossible for me to live there anymore.

Laura Shin: Can you at least confirm whether you are in Singapore?

Do Kwon: No, I refuse to answer that question. I do not want a lot of speculation about where I live. If I answer this question, you know, I still have meetings and some partners, which would make it easy for my location to be guessed, preventing me from living normally.

Did South Korea Lie?

Laura Shin: South Korea claims to have frozen your $67 million in crypto assets, and you tweeted denying this. What is your comment on this incident?

Do Kwon: First of all, this matter is definitely fabricated, but I do not know whether they have the intent to mislead people or if it is just a simple mistake. But in any case, this does not help clarify the truth. We see a lot of rumors, such as Do Kwon being on the run, but that is absolutely not true. We have paid all remaining taxes through legal procedures and applied for a legal work visa in Singapore. What I mean to express is that freezing $67 million is just one of many lies that have led to the truth being buried, just like the misinformation from the past few months that has led people to draw incorrect conclusions.

Arrogance on Twitter

Laura Shin: When Terra was on the rise, you posted a lot of arrogant comments on Twitter. Do you regret your arrogance?

Do Kwon: I really enjoyed interacting with others on Twitter at that time and sometimes spoke without a filter. Looking back now, I should have held myself to a higher standard.

On Twitter, I hid behind an anonymous cartoon avatar, so I spoke more freely, but that should not mean people should emulate me. I am actually a bit introverted in real life, but through communication with the media and Twitter, I have become more open and candid with my community, expressing my thoughts more transparently. My posts on Twitter were mainly for entertainment value because joking and sharing posts is fun. I think it is worth keeping them there to preserve that history and provide some insights for the future of Terra.

Do Kwon's Regret

Laura Shin: Many people lost their life savings and committed suicide because of Terra. What do you want to say to them?

Do Kwon: Regardless of any design flaws in Terra, it cannot be an excuse for me to respond to these matters. It is my responsibility not to have alerted people to the harshness of the market in advance.

For users, sending tokens to the Terra ecosystem was not wrong; Terra had hundreds of thousands or even millions of users at that time, all based on the stability of UST. I find it hard to express my sadness over the economic and emotional losses that occurred here.

Laura Shin: I want to follow up on a question. You said you would take full responsibility, but I don't seem to have heard an apology like "I'm sorry."

Do Kwon: Of course, I am very sorry for those users. But I never intended to do this. We have always been using reports or similar things to respond to allegations or related matters. I have firmly believed in the stability of UST, but users may not understand the economic mechanisms that ultimately led to our failure, which is the responsibility we are trying to take on.

Many people have suggested this is fraud or a Ponzi scheme or accused us of shorting UST or misappropriating user funds or similar things. I understand their emotions, but we absolutely do not think that way. I have always been a founder in the crypto space, and I have maintained transparency and openness for the past five years. To this day, I am proud of the path of integrity. We have tried to uphold the values of crypto through Terra, rather than attempting to create a protocol that ultimately fails and destroys billions of dollars in value.

Laura Shin: What was your and your family's financial situation like when Terra was collapsing?

Do Kwon: My family, such as my wife, does not own any real estate, like an apartment in Seoul. We also did not transfer funds from Singapore to the British Virgin Islands. We have established a corporate structure with a holding company in Singapore.

There are no clear accounting standards for how to calculate cryptocurrencies, and many crypto companies establish many companies that are nested within each other. We did not transfer any cryptocurrencies to the British Virgin Islands; I can only say that any tokens generated by Terra originated from the British Virgin Islands.

Anchor's Yield

Laura Shin: Regarding Anchor's interest rates, reports from South Korea state that initially, the interest rate for Anchor was set at 3.6% by a core developer, but you changed it to 20% a week before the product launched. Why was that?

Do Kwon: That is not true. Those developers who claim to be core developers of Terra on Korean shows are actually just some of our interns. If you browse GitHub or any open-source documentation, you will find that we have recorded their contributions, so I find it hard to imagine how they dare to claim they are core developers.

As for the yield issue, we need to understand how Anchor was generated. We planned to launch Anchor in early 2021, and at that time, you could look at DeFi yields, which were not particularly high compared to the summer of 2020, when DeFi yields could reach triple or even quadruple digits. So at that time, we thought such high yields were normal. The main value proposition of Anchor is that yields would decrease over time, which is also true for most DeFi protocols; initial yields are high, quickly forming high liquidity, and then start to stabilize. That was our intention as well.

2019 Hard Fork

Laura Shin: Let's talk about the hard fork of Terra in 2019, when a line of code changed the address of the investor TransLink after the hard fork. Such matters should have been publicly discussed within the community, but that did not happen in the Terra community. Why?

Do Kwon: I remember there was public discussion. But we must remember that when Terra was first established in 2019, there was not yet a meaningful community like Ethereum. There were very few people at that time, so there was not much significant discussion.

I think this handling was not inappropriate; it was just a technical issue. TransLink could not access their address, so we helped them during the upgrade. It was just a minor issue.

Compensation for UST Holders

Laura Shin: On May 21, you tweeted that people who suffered losses due to UST could receive compensation in USDT or USDC, starting with small holders. When will this happen?

Do Kwon: Currently, LFG is not in a position to clearly dispose of assets. Various civil lawsuits against LFG have restricted our ability to dispose of assets. I am not sure how long this process will take, but I hope it ends soon.

I also want to clarify that this is not a refund. A real financial system would only be established when people purchase something from us; we become a cryptocurrency provider, people give us money, and we give them stablecoins. People may not care whether the model is correct; they only care about whether the coins they use are stable. So our decision to exchange Bitcoin for USDT or USDC is just a goodwill gesture to provide some compensation to those who suffered losses, but it is definitely not a refund for our previous UST.

Reflections After Failure

Laura Shin: You have experienced some extreme highs and lows in your young life. Being an undergraduate at Stanford is clearly seen as an achievement, but you also became South Korea's biggest cryptocurrency star, certainly a notorious one. The South Korean government wants to arrest you. What do you think?

Do Kwon: To be honest, I think it will take several years to digest this.

First, I want to clarify that some of the things I posted on Twitter for digestion or similar purposes were never for money; I just enjoyed those jokes.

I hope to clarify in the coming years that what happened with Terra was not a scam or fraud; it was just a massive market failure. At the same time, I still believe in the necessity and feasibility of decentralized algorithmic stablecoins.

Many people think I am an idiot for buying Bitcoin or similar things just before it was about to collapse. But from the perspective of a founder of a crypto project, as long as people still have confidence in crypto, the crypto industry will get better. I am still willing to contribute.

Laura Shin: I am curious, if you could go back in time now, what would you do differently?

Do Kwon: I would definitely make a lot of changes. For example, I would understand that reserves are more important, be less aggressive, and joke less.

Twitter is definitely a place where I would make significant changes; I would spend less time on social media, which would help me get more work done.

My next attempt will still be in the field of decentralized currency, but it may not be a stablecoin, it may not be pegged to the dollar, and it may have different types of reserves. I firmly believe that establishing decentralized currency is one of the important issues that cryptocurrency must correctly address; it is fundamental to our industry.

I think in terms of recent regulatory crackdowns, things like censoring transactions and arresting developers from Tornado Cash indicate that we need to strive towards a decentralized future.

Developers need to learn from what has happened here and continue to try to create decentralized currency. Our experience is not entirely a failure; we built interesting applications, and our development history is very valuable for others to create decentralized currency.

I still want to contribute positively. Right now, all cryptocurrencies are highly experimental, and I plan to continue building and working.