Crypto Bros need to stop proving Jamie Dimon right

by Arthur · September 26, 2022

Do Kwon is not on the run. We know because the cryptocurrency founder said so. Singaporean authorities announced that he is no longer in their country, a South Korean court issued an arrest warrant for him, and Interpol issued a red notice. But that doesn’t mean he’s ready to reveal his whereabouts or his legal strategy to fight the charges.

Kwon’s outfit is called Terraform Labs. It is one of dozens of blockchain startups built to reinvent the global financial system and challenge the fiat-based structure that has central banks at its core. Its spin on the theme was to build a stablecoin on top of the Terra blockchain.

Rather than being backed by holdings of a fiat currency like the more well-known Tether – which claims to hold one US dollar for every Tether minted – TerraUSD achieves price stability via an elastic money supply. In its White Paper, the stablecoin’s promoters note that the extreme volatility of Bitcoin’s price is Terra’s raison d’être.

At the core of how the Terra Protocol solves these problems is the idea that a cryptocurrency with an elastic monetary policy will maintain a stable price, retain all the censorship resistance of Bitcoin, and make it viable for use in day-to-day transactions.

It’s just one, tiny, $60 billion problem. The algorithm did not work. The stick didn’t hold. TerraUSD’s price collapsed, as did its associated Luna token. And holders of these tokens were wiped out.

That was in May, and now Kwon is on the lam. Except he says he isn’t. And he also says it’s nobody’s business where he is, unless you’re a friend, planning to meet up, or playing a location-based game (the last one is a joke, we think).

Running a bad business is not against the law. Losing $60 billion of customers’ money is not in itself a crime either. But the authorities in Seoul are convinced that he did something wrong, and are trying to charge Kwon and five others with violating capital market laws.

After failing to get him to front, South Korea went one step further and asked Interpol to help, which they did, asking “law enforcement around the world to locate and temporarily detain a person pending extradition, surrender or similar legal action”.

This international game of cat and mouse is not a good look for Kwon, or crypto leaders anywhere.

For more than a decade, advocates have fought to shake off cryptocurrency’s image as a frontier for criminals, digital extortionists, drug lords and international arms traffickers. But every time the head of a cryptocurrency outfit — legitimate or not — drags its feet on explaining what happened to its collapsed business, or fails to outline a legal defense against any criminal charges, it gives fodder to the naysayers.

“They are decentralized Ponzi schemes,” Jamie Dimon, chief executive of JPMorgan Chase & Co., told Congress last week. It doesn’t help Kwon’s case, or cryptocurrencies more broadly, that his refusal to disclose his whereabouts comes as just a poster child for the old-fashioned, central bank-driven fiat system pointing fingers at an entire industry.

To be fair to Kwon, he’s not alone. Numerous other trailblazers have faced allegations and prosecution. Some were outright villains, some sailed too close to the wind, and others were victims of regulators’ inability to keep up with changing times. And there is still an ongoing debate to which of these categories some of the more high-profile cases belong.

Tether and its affiliated exchange, Bitfinex, last year settled allegations that the stablecoin was not fully supported, as it had claimed, and that it had engaged in illegal commodity transactions. In another case, an employee at another exchange was charged with insider trading.

There are plenty of illegal acts and strange shenanigans going on in the crypto universe to give ammunition to the critics. The life and death of Gerald Cotten, the founder of Exchange QuadrigaCX, went from a tragic story to a conspiracy theorist’s dream. After his sudden death in India at the age of 30, it was revealed that Cotten had various aliases and had transferred C$250 million ($183 million) out of the stock market to wallets whose passwords had been lost.

But crypto skeptics sometimes easily forget that infamous Ponzi schemer Bernie Madoff didn’t need newfangled tools to get $65 billion from investors. And the Enron and WorldCom frauds were committed before Bitcoin was even invented.

Cryptocurrency is a new technology that attracts new business models and many opportunists. That’s just how new industries work.

The oil boom of the late 19th century saw hundreds of wells sunk and dozens of schemes collapse, wiping out countless investors. Yet history rejects the early claim that oil, as a commodity, and the industry that followed, is a total fraud. In fact, many at the time felt that the liquid dripping from underground coal seams was not enough to sustain a business.(1) In fact, the dissolution of John D. Rockefeller’s Standard Oil neither crushed the company nor ended this new energy boom. . After facing angry lawmakers and losing court battles in the early 1900s, the business bounced back and rewrote history.

Cryptocurrencies have the same potential as oil to upgrade old industries and indelibly change the world. But to get there, the crypto barons must face the music and show the world they have nothing to hide.