‘Luna eclipse’
The crash that some had been warning about happened. TerraUSD (UST), a stablecoin, imploded over a period of a few days. TerraUSD was pegged 1:1 to the U.S. dollar through an algorithmic smarts that linked its value to a sister cryptocurrency called Luna, which crashed to $0.4 on May 12; on May 5, Luna was worth $87.
TerraUSD wasn’t able to maintain the $1 peg, which caused Luna to crash, creating a mutually reinforcing death spiral that wiped out both TerraUSD and Luna. It caused the underlying Terra blockchain to stop processing transactions twice in less than 24 hours. Further, Binance, the world’s largest crypto exchange, temporarily delisted UST and Luna, with the head of Binance publicly criticizing the management of TerraUSD for poor crisis leadership. In short, UST and Luna are done.
Do Kwon, the founder of TerraUSD has gone from a hero to a dud at lightning speed. Coindesk excerpted an article from The Node on May 11 titled, “Do Kwon Is the Elizabeth Holmes of Crypto.” Ouch. Basically, it argues that Kwon is either an intentional scam artist or a self-delusional crypto prophet who believed in his own hype. The sense of betrayal is keener in Korea since Kwon was a hometown boy done good.
A Stanford grad with stints as a software engineer in Microsoft and Apple, Kwon had a resume that was ideally suited to the Korean narrative of success worship. To be fair, Kwon wasn’t a crypto darling limited to just Korea. He was lauded as one of the youngest and most influential voices in decentralized finance (DeFi) by reputable members of the press throughout the world.
After the crash, however, Kwon went from Korea’s Musk to Korea’s Holmes. Conspiracy theories abound, with some even accusing Kwon of making an early escape because he knew what was going to happen and leaving the investors holding the bag; there is even a piece of paper on crypto blog sites claiming to show that Kwon dissolved Terraform Labs — that built Terra-based tools and applications — a few days beforehand. Korean media reported that Kwon had to call the police when someone — supposedly a TerraUSD investor — visited his home and rang the doorbell before running away. Anyways, this is just the beginning of this sordid, riches-to-rags story, with much left to be resolved over the next few years in the courts.
Despite the drama, UST’s crash isn’t the end-all of cryptocurrency, DeFi, or Web 3.0 story because this isn’t about just a quick get rich scam. At its core, the whole crypto phenomenon is about mythmaking for an entire generation. In January 2018, I wrote a column called, “Cryptocurrency as generational narrative,” and another one in February 2021 called, “Gamestop Populism,” arguing that the cryptocurrency craze in Korea was driven by a new public ethos of the young people who felt entitled to their own “Miracle of the Han River” moment.
In a nutshell, the cryptocurrency craze in Korea is a populist movement centered on the young who felt that their needs were not being met by the status quo. Worse, the prevailing rules, institutions, and elite were actively undermining the younger generation’s rightful equity to take part in the prosperity of the county. This was the opportunity to strike back by making much more money much more quickly than the entrenched elite could. Hit them where it hurts. Show them who’s boss. “OK, Boomer,” they would have liked to say, “See you in my rear-view mirror.”
All this was further fueled by the atomization of mainstream media via various social media channels in which conspiratorial whispers of generational wrongs, gender wrongs, institutional wrongs and other perceived wrongs and grievances were amplified within an echo chamber powered by an ingrained sense of entitlement for their own economic miracle — populated by mostly young men who felt increasingly marginalized in a changing world where they were relegated to the harshness of the gig economy, non-regular employment, and steeper competition in a deepening sea of injustice where only heredity guaranteed success.
Behind this lay the ideology of the decentralization of power and money for the sake of cleansing the old world of corruption and inequity. In his article, “Behind the crypto hype is an ideology of social change,” Rick Wash writes “They seek change. They want to change who has power and who doesn’t. They argue that crypto is how that change will happen. For crypto enthusiasts, using crypto isn’t just a way to buy and sell things. By using crypto technologies, they argue, society will become less dependent on governments and corporations.”
It’s essentially the latest iteration of the cultural revolution, seeking a cleansing change of the status quo through a revolution of the socioeconomic and political order. For those who feel marginalized and grieved by the status quo, it’s an irresistible ideology; join us and achieve social justice through quick and bloodless self-enrichment.
Of course, the question becomes, what now? What happens to the believers when their gods and faith come crashing down? If history is any indication, they won’t be merely angry and disillusioned. They will double down and become radicalized in a spasm of self-destructive energy. Unfortunately, no one knows in which direction that radicalization will happen, but the future wellbeing of Korea Inc. might depend on managing that energy productively.