Compilation of the original text: Hu Tao, Chain Catcher

Original title: "Do Kwon’s Crypto Empire Fell in a $40 Billion Crash. He’s Got a New Coin for You.》

Compilation of the original text: Hu Tao, Chain Catcher

Do Kwon leveraged a cult Twitter following to build a cryptocurrency empire that collapsed in a $40 billion crash last month. The South Korean entrepreneur is now trying to stage a comeback despite investor anger, government investigations and a crypto market downturn.

"I have full confidence in our ability to rebuild stronger than before," Do Kwon told the Wall Street Journal.

Do Kwon backed the launch of a new version of Terra, the blockchain network behind the failed UST and Luna. UST is a so-called stablecoin designed to maintain its value at $1, but the token is now worth less than a penny. Its collapse triggered a more than 99% plunge in Luna, a cryptocurrency backed by UST's peg to the U.S. dollar.

The resulting internal meltdown hurt thousands of investors around the world, including many who deposited their savings in Anchor Protocol, a crypto bank that offers high yields on UST deposits. The crash was also a harbinger of this month's crypto market carnage: a brutal sell-off that led lending platform Celsius Network to freeze all accounts worth billions of dollars.

Since the UST debacle, groups representing more than 90 people in South Korea have filed complaints against Do Kwon, accusing him of fraud and illegal fundraising. A spokesman for the Seoul Southern District Prosecutor's Office confirmed that it was investigating the Luna and UST cases, but declined to provide details. An investor rang the doorbell at Do Kwon's Seoul home, prompting Do Kwon's wife to seek police protection, according to local media reports. The investor — an internet celebrity who streams crypto — later said on his live channel that he lost money on Luna and wanted to speak to Do Kwon in person.

Last week, a U.S. law firm representing Chicago-based investors who lost money in the UST crash filed a lawsuit seeking a class-action lawsuit against Do Kwon, his company Terraform Labs and several others, alleging fraud and the sale of unregistered securities.

Terraform Labs said it would not comment on any active investigations. It said the lawsuit was baseless and said it intended to defend itself.

Do Kwon, 30, said: "I am devastated by the recent events and hope all affected families are taking care of themselves and their loved ones."

Earlier this year, when Luna was trading near $100, analysts said Do Kwon was a billionaire based on the number of tokens he held. That may have been the case, Do Kwon said, though he "never really calculated it" — and he lost nearly all of his net worth in the crash. "It doesn't bother me," he added, "I live a pretty frugal life."

The new Terra blockchain launched in late May after a majority of Luna holders approved the move in a shareholder-style vote. The old, nearly worthless version of Luna was renamed "Luna Classic," and holders of UST and Luna Classic received a new token called Luna.

So far it hasn't been going well: The new Luna started trading at $18.87 on May 28, before plummeting immediately to trade at $1.97, according to data provider CoinGecko.

"I don't understand why anyone would want to invest in Luna 2 after seeing Luna 1 explode so violently," said Mati Greenspan, founder of crypto research firm Quantum Economics.

Backers of the relaunch hope developers will be able to build applications based on Terra technology, sparking activity that will give value to the new Luna. “Many builders are relaunching their applications on new chains,” Do Kwon said.

The reboot may be the final act of brazenness by Do Kwon, a man who has a divided following in the cryptocurrency community. His admirers called himself a "lunatic," while his detractors saw him as a snake oil salesman.

“I feel very sad for Do Kwon because his name is now being dragged through the mud,” said Ronald AngSiy, an executive at Intellabridge Technology Corp., which allows people to earn interest on cash deposits by investing in cryptocurrencies.

Mr. AngSiy interacts with Do Kwon at business meetings and acts as Terra's ambassador. He said he lost more than $1 million of his personal investments in the Luna crash, but holds Do Kwon in high regard. "On Twitter, he can act like a megalomaniac, but he's not," he said.

Others in the crypto community say Do Kwon ran a sophisticated scam. "It's very clear from how this guy tweets, how he speaks on camera, how he presents himself as a fraud," said Cory Klippsten, chief executive of cryptocurrency firm Swan Bitcoin.

Do Kwon denied Klippsten's account. He noted that big names in the crypto industry share Do Kwon’s belief in UST’s future, and that he personally lost money in the crash. "I've made confident bets and made confident statements on behalf of UST because I believe in its resilience and value proposition," he said. There is a difference between failure and fraud.”

Since its inception, Terraform Labs has raised more than $200 million in funding from investors including Coinbase Ventures and Mike Novogratz's Galaxy Digital Holdings Ltd., according to PitchBook. Coinbase said its investment in Terraform Labs was small and that it had no direct investment in UST or Luna.

Do Kwon attended a prestigious foreign language high school in Seoul, where he excelled in English debating and participated in the World Schools Debating Championships with the Korean team for three consecutive years. People who knew him as a teenager described him as charming, with a penchant for saying controversial things that riled up his classmates.

He graduated from Stanford University in 2016 with a degree in Computer Science. He turned to cryptocurrencies after working at Microsoft and Apple and founding an unsuccessful web startup, Anyfi.

Do Kwon founded Terraform Labs in 2018 with Daniel Shin, a respected figure in the Korean startup scene, to develop the Terra blockchain. Daniel Shin declined to comment for this article.

According to a 2019 white paper co-authored by Do Kwon, the project's vision is to create a series of Terra stablecoins pegged to the U.S. dollar, Korean won and other traditional currencies. The idea is that people can use these tokens in daily transactions - called TerraUSD, TerraKRW, etc. Unlike major stablecoins such as USDC, the Terra stablecoin is not backed by real dollars or investments, but instead uses financial engineering to maintain price stability. According to Do Kwon, such a design makes it harder for the government to control transactions. He adopted the motto: “A decentralized economy needs decentralized money.”

Kwon often cites South Korean payment app Chai’s use of its stablecoin as an example to differentiate Terra from rival crypto projects. Chai was launched in 2018 by Chai Corp., a startup founded by his partner Daniel Shin. The app initially used Terra to process payments, with little use of blockchain technology in the real world. As Chai grows to serve millions of users, Do Kwon's comments reinforce the impression that Terra's stablecoin has a stable user base transacting and can act as a stabilizing force during periods of market volatility.

But according to a review of his past comments, Do Kwon has repeatedly exaggerated the connection between his blockchain project and Chai.

A spokesperson for Chai said Do Kwon and Daniel Shin parted ways in March 2020. By 2021, Chai will no longer use Terra’s blockchain technology or digital assets to process its payments or store its assets, the spokesperson said. Chai and Terra only maintain their marketing partnership from May 2021 to March 2022, according to the spokesperson.

Nonetheless, Do Kwon told an interviewer in April 2021 that 2.6 million South Koreans are using the Terra stablecoin for payments. As recently as March of this year, he mentioned Chai’s use of the Terra stablecoin in a podcast.

Terraform Labs and Do Kwon stated that they have always tried to be realistic when describing Terra and Chai. They said Do Kwon’s comments were correct because of the partnership with Chai, which allows users of the app to convert Terra’s Korean won stablecoin into “Chai assets” for payments. The feature was adopted as part of the partnership in May 2021, but its scope was scaled back four months later due to low demand, a Chai spokesperson said. Today, none of Chai's services are affiliated with Terra, the spokesperson said.

Several Terra team members resigned in 2020 amid uneasiness with Do Kwon's direction in charge of the project, people familiar with the matter said. One of their concerns, the people said, is that Do Kwon insists on setting a fixed rate of return on deposits in the Anchor Protocol to entice users to use UST. Team members said Do Kwon's approach was unsustainable and urged the adoption of floating yields in response to market conditions.

When Anchor goes live in March 2021, its yield is set at around 20%, a high rate that attracted billions of dollars in investor funds before UST crashed. Terraform Labs declined to comment on former employees, but noted that Anchor began moving away from fixed income earlier this year.

Another concern that drove team members to leave was Do Kwon's push to launch Mirror Protocol, which they believed violated U.S. securities laws, the people said. Mirror Protocol is essentially a pseudo-stock market, with its cryptocurrency tracking the prices of U.S. stocks like Apple and Tesla.

The project made Do Kwon a target of the U.S. Securities and Exchange Commission, which began investigating Mirror Protocol last year. In September, the SEC subpoenaed him at a crypto conference in New York. A month later, he sued the SEC to prevent the agency from enforcing the subpoena. In February, a judge ruled against Do Kwon, who lost an appeal earlier this month.

Terraform Labs said it has been complying with the process and related court orders. It says Mirror Protocol is not a market or exchange as defined by US law. A spokesman for the SEC declined to comment.

As UST grows in size, critics including academics, crypto fund managers and Do Kwon's competitors warn that it is vulnerable to collapse. They point to similar algorithmic stablecoins failing in a so-called death spiral after the mechanism that pegged them to the U.S. dollar collapsed.

Do Kwon dismissed such criticism on Twitter. In March, he called those who said UST could lose its peg "idiots." Last year, after British financial blogger and cryptocurrency skeptic Frances Coppola expressed concern about bank runs on crypto lending platforms, Do Kwon tweeted: "I don't debate poor people on Twitter, sorry, I Nothing has changed for her now."

"He was rude to me," Ms Coppola said. When asked about the tweets, Do Kwon told the Wall Street Journal: "Do I regret some of the things I said in the past? Yes."