Bloomberg Interview: The Most Influential Bitcoin "Enthusiast" Currently

In 2016, Do Kwon was just a relatively unknown founder of a startup, ambitiously aiming to provide free internet services for all. It was during this time that he began to take notice of the content related to Bitcoin and Ethereum in his research on distributed networks.

He soon found himself falling down the "crypto rabbit hole." Fast forward to today, this "newcomer" in the industry has become one of the most influential and controversial figures in the crypto rabbit hole.

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On one hand, there are large numbers of fans known as "Lunatics" and wealthy crypto supporters who have transformed Kwon's vision from an idea of designing a stable digital token that is both easy to use in real life and unaffected by Wall Street and regulatory authorities into one of the largest blockchain projects to date, with an ecosystem that includes billions of dollars' worth of crypto assets.

(For beginners, "Lunatics" refers to "crazy people," but it is also a nod to the Luna Token, which is designed through an algorithm to maintain the stability of Terra's stablecoin UST.)

On the other hand, there are critics, including many within the crypto community, who believe that Kwon is destined to fail. Some liken Terra's incredible 20% APY lending program to a massive Ponzi scheme that will ultimately collapse under its own weight. Some even warn that it could destroy the entire crypto world, although there is not much evidence to support this.

At the center of it all is this 30-year-old "King of Lunatics." This year, a group led by Kwon has helped and supported Terra by purchasing over $1.5 billion worth of Bitcoin, with plans to acquire up to $10 billion worth of Bitcoin in the future, leaving the people in the "laser eyes" community amazed (a common practice among Bitcoin maxis to have laser eyes in their Twitter profile pictures).

This has not only made Terra one of the largest whales in the Bitcoin community but also a point of collision between supporters and detractors. LUNA believers see the bold move to buy Bitcoin as bringing Kwon's vision closer to reality, while skeptics see it as a desperate attempt to divert attention from a project destined to run out of funds.

"I have kind of a polarizing role in the crypto industry right now," said Kwon, co-founder of Terraform Labs, in an interview with Bloomberg. "Because, you know, we've taken a lot of bold actions. It has upset some people."

Kwon seems to enjoy stirring up trouble, with his online persona built on confident, combative, and sometimes childish tweets. In fact, he only gained recognition in the collective consciousness of the crypto industry after symbolically "flipping off" the U.S. Securities and Exchange Commission, which led to his newfound recognition.

Kwon sued the commission to review the software developed by Terraform that allows people to create and speculate on tokenized synthetic stocks and ETFs without owning actual assets.

So, it may not come as a surprise when Kwon refutes accusations of Terra being a Ponzi scheme. And he is consistent with his actions: in March, he made an $11 million bet with two of his social media critics to prove them wrong, all happening on the blockchain.

Many in the crypto world are also betting on this Stanford graduate and former Apple and Microsoft engineer.

Aside from his 360,000+ followers on Twitter, some of the most influential figures in the industry also see themselves as LUNA lunatics. Terraform Labs has received support from Coinbase Ventures, Galaxy Digital, Pantera Capital, and many other crypto institutions.

The organization Luna Foundation Guard, which purchased Bitcoin for Terra, also raised $1 billion through a private sale of Luna Tokens in February, with buyers including Jump Crypto, Three Arrows Capital, and others.

Michael Novogratz, the billionaire crypto mogul leading Galaxy Digital, has shown his respect for Kwon and Terra in a very direct way.

"I might be the only person in the world with both a Bitcoin tattoo and a LUNA tattoo," Novogratz said at the Bitcoin conference in Miami on April 6, referring to the "Night Wolf Howling at the Moon" inked on his left arm.

All this frenzy and excitement, along with Terra rapidly becoming the second-largest blockchain in decentralized finance, initially sounds quite ordinary: a commitment to designing a valuable crypto asset.

Specifically, one worth a dollar, no more, no less. However, in the highly volatile crypto world, achieving this doesn't sound so easy—especially when you're trying to completely avoid interaction with the traditional financial system. A reliable stablecoin that maintains a value of 1 dollar is crucial to Terra's ultimate goal of creating peer-to-peer digital cash that bypasses banks, regulations, and all associated costs and regulations.

Currently, stablecoins are primarily used by speculators as a place to park their funds to avoid the drastic fluctuations in the crypto market. Traditional dollars can usually only enter and exit the crypto world through exchanges like Coinbase and FTX, which follow the same "know your customer" principles as banks and brokerage firms.

Stablecoins can roam freely where traditional dollars cannot: entering various DeFi platforms that provide anonymity for users and participating in various cutting-edge forms of crypto speculation.

The largest stablecoins, Tether and USDC, attempt to achieve a one-to-one peg to the dollar by holding real-world reserve assets denominated in dollars (such as treasury bills or commercial paper).

However, this always involves the participation of a bank or some centralized entity. DeFi evangelists like Kwon argue that this goes against their overall mission to liberate humanity from financial and regulatory "scrutiny." For instance, some regulatory bodies may shut down an entire stablecoin project and confiscate all its assets.

This is where UST comes in. It is known as an algorithmic stablecoin, designed to eliminate these risks by completely avoiding non-crypto reserve assets. Instead, it aims to maintain a peg to the dollar by its relationship with volatile crypto assets (in this case, Luna).

In simple terms, for every minted UST, an equivalent value of circulating Luna is burned through embedded algorithmic code to keep UST at $1. The high yields on UST deposits are intended to attract capital, which can then be lent out to generate returns and pay interest to depositors.

However, the track record of algorithmic stablecoins is filled with failures, with many projects shockingly losing their peg. Neutrino, IRON, and Basis all lost their peg to the dollar after the price of their volatile tokens plummeted.

This has led some to view these types of protocols as confidence games: as long as you can convince enough users, the price will continue to rise, and everything will be fine. According to Kwon, the risk of UST becoming untethered from the dollar has actually increased due to the explosive growth of DeFi projects on the Terra blockchain. It could be said that Luna is a victim of its own success.

To prevent this risk, Kwon goes back to one of the most commonly mentioned mantras in the crypto industry: Bitcoin can solve this problem.

The Luna Foundation Guard plans to continue buying Bitcoin as a form of support to help bolster UST. The organization, abbreviated as LFG, which stands for "Let's F**king Go!" in line with another common crypto catchphrase.

For the same purpose, LFG will also purchase $100 million worth of AVAX tokens. As more UST is issued, a portion of the fees collected will be used to purchase these collateral assets. In theory, this will enable Terra to achieve its goal of creating a truly decentralized stablecoin.

However, Kevin Zhou, the founder of crypto quant hedge fund Galois Capital, remains skeptical. Zhou sees himself as one of the most outspoken critics of Kwon and the Terra community. On Galois' Twitter account, the former trading head of U.S. crypto exchange Kraken describes his company as Rome and Terra as Carthage.

If you're not familiar with the history of these two places, Roman soldiers eventually sacked Carthage in the Punic Wars, slaughtering many of its citizens.

Like many crypto battles, Twitter is also the main battlefield for this conflict.

Almost every day, Galois unleashes a storm of tweets criticizing Terra, detailing how the potential imbalance between Luna and UST could lead to the stablecoin's inability to maintain its $1 peg. According to Galois, buying Bitcoin as a reserve asset indicates that Kwon is concerned about impending liquidation and margin calls.

Galois points out that Terra's deposit APY is currently around 19.5%, which is due to a significant amount of UST supply yet to enter the market, threatening its peg to the dollar. Galois believes that the high yield on the Anchor lending protocol will ultimately deplete the reserves supporting the project. In essence, more money flows out of the protocol than in, which, to Galois, is illogical.

The company tweeted on April 7: "Every day, the Anchor reserves bleed millions of dollars, counting down like a doomsday clock." In fact, according to DeFi data compiler Mirror Tracker, the protocol has consumed over $100 million of reserves in the past 30 days, leaving approximately $280 million.

Galois insists that it wants UST to fail, and fail quickly, to prevent Terra from growing larger and potentially destroying the entire crypto world. However, Galois did not respond to requests for detailed explanations.

In a recent tweet, they explained why: "You know, major mainstream media companies wanted to reach out to me for comments on Luna after seeing our tweets, I declined them because I don't want to be a pawn in shaping the anti-crypto narrative."

Others have compared the project to a Ponzi scheme because it requires a growing demand for the token. This includes a user on Twitter named Algod Trading, who previously engaged in a high-stakes bet with Kwon on Luna's price.

Of course, accusations of Ponzi schemes are common in the crypto space, often due to a lack of real-world cash flow or assets to back up the numbers on your screen. Bitcoin has been accused of being a Ponzi scheme since its inception, but thirteen years later, its market value is around $800 billion and still going strong.

Kwon says that the demand for UST will continue to grow. While Terra's largest application to date remains the Anchor protocol, other applications are now being developed, including Prism, which Kwon describes as "a very novel and innovative interest rate swap protocol," and some gaming and cultural projects.

He believes that the high interest rates on UST will not pose a risk to the project, as the rates will naturally decline as the project matures. He compares these lucrative rates to those in the 1990s when many commercial banks in Asian countries had high interest rates. Ultimately, as the economy matured, those rates also came down.

"The idea is that I have a lot of faith in decentralized ecosystems, decentralized currencies," says Kwon, who is Korean and shuttles between his homeland and Singapore most of the time. "I'm very confident that Terra will be the largest stablecoin within the next two years."

Kwon says that the work required to achieve this vision doesn't necessarily mean he has to live like a "lunatic." When he's not working, he usually spends time with his wife, who recently gave birth to their first child—a daughter named Luna.

If you want to meet him in Singapore, he'd prefer to go hiking at the MacRitchie Reservoir with you, so he can get some exercise at the same time.

Kwon also doesn't spend as much time playing StarCraft as he used to, the futuristic outer space video game that inspired much of the terminology in his blockchain project and fueled many interactions with fans and critics. In StarCraft, the Terrans are humans exiled from Earth who, as Wikipedia puts it, "are adept at adapting to any situation."

In reality, Kwon and his Terra project are also adapting. They have not ignored the various comments coming from constantly "upgrading" critics, as Kwon says: "These pieces of information are like countless data points from various different places. You synthesize it, and then you try to put your best foot forward."

In Miami, Novogratz analyzed Kwon's decision to turn to Bitcoin as a reserve asset to support UST: "It's not without risk, right?" he told the audience in his keynote speech at the conference. "Luna is in this transition period right now. The plan is to buy $10 billion worth of Bitcoin, and as the ecosystem grows, that number will grow too. As long as there's no bank run, everything's fine."