Do Kwon and Su Zhu go from kingpins to outcasts

If there was a year for the cryptocurrency markets to prove Newton’s law of universal gravitation right, 2022 was the one.

Cracks were already starting to appear when after last November’s unprecedented bull run to US$69,000, bitcoin (BTC) began dropping in value, fast.

Come the new year, 30% has already been chewed out of the market, but for those who have kept tabs since, you’d know this was only the beginning.

As I type, bitcoin is valued at a mere quarter of what it was barely a year ago, while the cryptocurrency markets as a whole have lost a whopping two trillion dollars in capital.

What went up did indeed come crashing down, taking dozens of cryptocurrency firms, investors and bystanders along the way. 

Thanos-level villains were made, and some heroes too. Plus a few fugitives for good measure.

What else can we do but grab some eggnog and dive into the key events of this most tumultuous of years.

Terrable twos

In a year of countless scandals, Terraform Labs was the real trailblazer.

Once upon a time (i.e. earlier this year), Terra LUNA and the UST stablecoin were two of the largest altcoins on the market, distributed by Singapore-based developer Terraform Labs.

UST was designed to be pegged firmly to the US dollar to allow for trading on the crypto markets with unpredictable price volatility. LUNA, meanwhile, acted as a sort of stabilising mechanism for UST.

Their utility made them extremely popular among investors and they became a core component of the wider crypto ecosystem.

There was just one problem: UST’s pegging algorithm wasn’t worth the keystrokes it was written with.

LUNA and UST had a combined market value of US$45bn on May 9, 2022. One week later, they were virtually worthless.

Thousands of people lost millions and Terraform Labs head Do Kwon became an international pariah.

To this day, his whereabouts remains unknown, and he has so far refused to cooperate with authorities in his native South Korea who want him on possible capital markets laws violations.

Even Interpol have got involved, yet still his location remains a mystery, with some positing that he has fled to Serbia.

Kwon even had the temerity to launch LUNA 2.0 in June. It has since collapsed in value by 80%.

A poison arrow

Terra’s collapse was widely seen as the first domino in a chain of events that has yet to be broken.

But the liquidation of the once-leading Singapore-based crypto hedge fund Three Arrows Capital in June kicked things into a whole new gear.

The stark incompetence of founders Su Zhu and Kyle Davies was laid bare in bankruptcy filings leaked online by New York-based consulting firm Teneo.

The massive report, filed by joint liquidators Christopher Farmer and Russell Crumpler before the High Court of the British Virgin Islands, contained a slew of revelations of severe mismanagement leading to the collapse of the once-leading Singapore-based crypto fund.

Among the most egregious of the affidavit’s rap sheet were the elaborate purchases of co-founders Su Zhu and Kyle Davies.

While consistently ignoring any correspondence attempted by the company’s litany of creditors, Zhu and Davies reportedly made a downpayment on a US$50mln superyacht.

The tome listed a litany of high-value margin calls against Three Arrows Capital, outlining a debt black hole that the hedge fund had little hope of crawling out from.

Unfortunately for 3AC, the firm had US$670mln worth of exposure to Terraform Labs and the fund was “leveraged long everywhere and were getting margin called” according to an affidavit statement by Danny Yuan, the chief executive officer of cryptocurrency trading firm 8 Blocks Capital.

“Instead of answering the margin calls, they ghosted everyone,” Yuan testified.

After going dark for months, Su Zhu recently began Tweeting again, in an apparent first step to orchestrating a comeback in the form of a video podcast series.

From where the podcast will be recorded is unknown: Neither Zhu nor Davies has cooperated with the bankruptcy proceedings, and neither has returned to Singapore to face charges brought by the Monetary Authority of Singapore.

And the beat goes on

That only brings us to July and unfortunately, things are only getting started.

There were plenty more crypto villains in the making for 2022. Stay tuned for part two.