'Don't Say Terra' and Other Reflections From Korea's Crypto Extravaganza

‘Don’t Say Terra’ and Other Reflections From Korea’s Crypto Extravaganza

According to former employees, “Terra” was the unofficial beer of Terraform Labs. (Sam Kessler/CoinDesk) Earlier this month, the who’s who of South Korea’s crypto scene descended upon hotel ballrooms in Seoul’s ritzy Gangnam district. They were there to attend a string of conferences meant to showcase Asia’s budding crypto ecosystem.

Terra, which was founded in South Korea, was one of the most talked about projects in the crypto-verse until it crashed last spring. It was, in many ways, the match that burnt down the entire crypto market – setting off a ripple effect that brought everything, including bitcoin and ether, down to the lowest prices they had seen in over a year.

The largest event in Seoul this month, Korea Blockchain Week (KBW), counted many of Terra’s original builders, investors and partners among its 7,000 attendees. KBW could have been an ideal forum to discuss the ills and excesses that culminated in the project’s unprecedented rise and fall.

Instead, any reflection on Terra – whose controversial tactics continue to run rampant throughout decentralized finance ( DeFi ) – was conspicuously missing from the KBW agenda. In place of Terra-centered soul-searching were humdrum discussions around GameFi, NFTs ( non-fungible tokens ) and the future of DeFi. The one-time Korean DeFi darling – ever the elephant in the room – was taboo.

Altogether, the events in Seoul left the impression of an image-conscious industry reluctant to learn from its mistakes or wade into controversy.

The Terra fiasco, wherein a $40 billion dollar ecosystem collapsed to nearly nothing, continues to cast a shadow over the South Korean crypto scene which birthed and incubated it.

At the core of Terra was UST – a decentralized stablecoin that sought to maintain its $1 peg through clever programming rather than through direct 1:1 backing. The vision was ambitious. And it worked well until it didn’t.

The company that launched Terra, Terraform Labs, sold its vision of a decentralized dollar to legions of retail investors – many of whom lost big when UST (and its sister token, Luna) fell precipitously to zero in May.

For months before the crash, onlookers warned that UST’s stabilizing mechanism, which was supposed to expand and contract the supply of luna to keep UST at $1, was destined to fail just like virtually all similar experiments preceding it.

Suffice to say, the project was risky. And yet, Terra founder Do Kwon and many of his investors were adamant that UST was a safe investment.

Terra played a major role in growing South Korea’s nascent crypto scene. Many of the builders and retail investors who I spoke to in Korea cited Terra – sometimes with an embarrassed chuckle – as their first door into the sector. And I received pitch after pitch from projects that were forced to move to X or Y blockchain after originally building on the ill-fated “Terra Classic” blockchain.

Several of the most prominent companies and investors behind the events in Seoul – like KBW co-hosts Hashed and Klaytn – were major Terra partners.

Hashed, a Seoul-based investment firm with a cut-throat reputation in Korea’s crypto scene, suffered from the Terra fiasco just like everyone else did. One of Terra’s largest investors, the firm reportedly lost $3.5 billion from the project’s implosion.

Terra’s underlying mechanism was criticized right from the start, but Terraform Labs and its brash founder didn’t want you to believe the haters. They bred a cult-like community that ostracized critics for circulating “FUD,” or “fear, uncertainty and doubt.”

Responding to one critic in July 2021, for example, Kwon tweeted, “I don’t debate the poors.” His response was cheered on by some of Terra’s loyal fans, self-dubbed “lunatics.”

Outside of its propaganda machine, Terraform Labs lured buyers into the Terra ecosystem through generous incentive programs subsidized, in part, by investor money. If the money behind those incentives were to dry up, critics feared that demand for Terra’s UST and Luna tokens would drop enough to break the mechanism that keeps UST “pegged” to one dollar. (In reality, the UST mechanism fell apart long before Terraform Labs ran out of reward runway.)

According to a recent Korean media report , Hashed joined in on the promotion frenzy: Top brass from the firm attacked critics who called out Terra’s mechanics, and the fund issued biased forecasting reports depicting the project in a favorable light.

Has Hashed learned any lessons from investing in a project that reportedly wiped billions of dollars from its balance sheets? Don’t ask Hashed.

At KBW, Hashed refused to speak to CoinDesk about Terra – its best-known investment. The venture firm, which […]

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