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Terra Was “a Massive Failure in Risk Assessment”: Do Kwon

Do Kwon showed some rare humility as he discussed Terra’s failure in a new clip published by Coinage.

Terra Was “a Massive Failure in Risk Assessment”: Do Kwon
Cover photo courtesy of Coinage

Key Takeaways

  • Do Kwon has admitted that Terra was "a massive failure in terms of risk assessment" in a Coinage interview.
  • The Terraform Labs CEO said that he had failed to account for the possibility that Terra's UST stablecoin would not work.
  • Kwon also said that he didn't blame Terra's collapse on the UST sellers that triggered the network's death spiral.

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The Terraform Labs CEO has admitted that he “should have known the risks of UST much better.” 

Do Kwon Reflects on Terra Collapse 

Terraform Labs made huge risk management errors prior to Terra’s collapse, Do Kwon has said. 

In a new clip published by Coinage Friday, the Terraform Labs CEO admitted that he and his team had overlooked Terra’s risks in the lead-up to the network’s $40 billion implosion in May. 

When discussing Terra’s algorithmic stablecoin UST, which caused an ecosystem-wide meltdown when it lost its intended parity with the dollar, Kwon said that he “should have known the risks much better.” 

In response to a question about who was to blame for not detailing UST’s risks to retail investors, Kwon said that he “didn’t think that the risks that were being posited to UST were material” and had not thought about the stablecoin failing. “Every day, as UST grew, I saw it gaining in Lindy, gaining in popularity, gaining more integration, and it just sort of became this thing that inspired people in crypto generally-the idea of a decentralized stablecoin,” he explained. 

“I think [UST was] a massive failure in terms of proper risk assessment,” Kwon added, showing a humble side to his personality that defies the cocksure tweets he became infamous for during Terra’s peak. “I saw UST as that thing that was almost inevitable and was poised to become the money for all of crypto,” he said, before admitting that it was “not rational” to assume that UST’s success was guaranteed.  

Kwon Doesn’t Blame UST Dumpers

Until it collapsed over the course of a few days in early May, UST was crypto’s biggest decentralized stablecoin with a market capitalization of over $10 billion. It started to plummet in value when a series of large market sells pushed it below its $1 peg, leading to a bank run scenario that saw Terra’s LUNA token enter a death spiral toward zero. Reflecting on the events that triggered the network’s collapse, Kwon suggested that he didn’t hold any contempt for the big players that kicked off the UST selloffs. “In every trade, there’s collateral damage,” he said. “If the peg broke, you can’t blame the trader that took a market opportunity.”  

Kwon broke his silence for the first time since Terra’s collapse this week in an extended interview feature with Coinage. The first part aired Monday, though it was widely criticized by viewers who accused Kwon of failing to take on any accountability for the events.

Kwon is currently living in Singapore, but both he and Terraform Labs are facing probes on suspicion of fraud and misleading investors in South Korea and the United States. This week, it was reported that he’d hired a team of South Korean lawyers to assist him with legal proceedings. 

Disclosure: At the time of writing, the author of this piece ETH and several other cryptocurrencies. 

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