$45 billion. I want you to just sit with that
number for a second. $45 billion. It's just,
it's a staggering figure. It is. It's a number
so big it stops feeling like money and, you know,
it starts feeling like an abstraction. But it
wasn't abstract. It was real value. Very real.
It was college funds. It was retirement accounts.
It was the treasury of entire companies. And
in May of 2022, it didn't just dip. It didn't
have a bad week. It evaporated. It's arguably
one of the most violent destructions of wealth
in the history of financial markets. And I don't
say that to be hyperbolic. Yeah, I don't think
you are. If you look at the speed of it, we're
talking about a top 10 global crypto asset effectively
going to zero. Not in a month, not in a year,
but in the span of about 72 hours. And the craziest
part isn't even the speed. It's what this thing
was supposed to be. I mean, we aren't talking
about some speculative meme coin with a dog on
it that everyone knew was a gamble. Right. We
are talking about stable coins. The one thing
in this entire wild west of crypto that was promised,
literally engineered, to stay boring, to stay
at exactly one dollar. That's the promise, isn't
it? The promise was stability. The reality was
a death spiral. And that's the tragedy of it.
It preyed on people's search for safety. We are,
of course, talking about the collapse of Terra
and its token. And looking back at it now, from
our vantage point here in 2026, the dust has
finally settled. We have the court verdicts,
we have the forensic accounting, and we have,
I think, the full picture of what happened. We
do. But even knowing how it ends, the story is
absolutely wild. It's got a founder on the run
with fake passports. It's got secret bailouts
from high -frequency traders. And it has a mechanism
that... when you really look at it, makes you
wonder how anyone thought it would work in the
first place. It's a case study in hubris. It's
a story about what happens when you try to reinvent
the wheel, specifically the concept of money
itself. But you ignore the physics of the market.
You think you're smarter than centuries of financial
history. So here is the mission for this deep
dive. We are going to peel back. All the layers
of the Terra ecosystem. We're going to move past
the headlines of crypto crash and actually understand
the mechanics. I want to know exactly how this
algorithmic stablecoin worked, why it failed,
and why smart people, and I mean really smart
institutional investors, poured hundreds of millions
of dollars into it. And we have to talk about
the human element. You can't separate the tech
from the people. Do Kuan and Daniel Shin, the
architects. Absolutely. The charismatic trash
-talking leader and the quiet, connected operator.
We're going to track them from the boardrooms
of Seoul to a private jet on a runaway in Montenegro.
But before we get to the handcuffs and the prison
sentences, we have to start with a dream. Because
in 2018, this didn't look like a scam. To a lot
of people, it looked like the future. It really
did. You have to remember the context of 2018.
Crypto was still trying to find its killer app.
Bitcoin was great as digital gold, but it was
too slow and way too volatile for, you know,
buying a coffee. Right. You don't want your latte
to cost $5 one day and $7 the next. Exactly.
And Ethereum was building this amazing world
computer. But the transaction fees, the gas was
getting really expensive. The space was desperate
for something that could be used for payments,
something fast, cheap and stable. Enter Terraform
Labs, founded in Seoul, South Korea. Right. And
as you said, it's founded by Do Kwon and Daniel
Shin. And this is a key point. These weren't
two kids hacking away in a basement. No. Daniel
Shin was already a major tech mogul in Korea.
He founded a company called Ticket Monster, which
is a huge e -commerce platform there, a unicorn.
He brought the business legitimacy, the connections.
And Duquan. Duquan was the young visionary, the
Stanford computer science grad, former engineer
at Apple and Microsoft. He had the technical
swagger, the belief that he could code a better
form of money. And they had the backing to match.
I was looking at the investor list in the notes
and it is just staggering. It's a who's who of
crypto venture capital. We're talking Coinbase
Ventures, Galaxy Digital, Lightspeed Venture
Partners, Arrington Capital. These are the blue
bloods. They raised $200 million across various
rounds. And that's crucial to understand. When
you see names like that on the cap table, it
turns off your skepticism alarm. Oh, absolutely.
You assume that these multi -billion dollar funds
have done the due diligence. You assume they've
hired PhDs to look at the map and they've all
said, yes, this works. It's social proof on an
institutional scale. So what was the pitch? What
was this revolutionary idea they were building
that got everyone so excited? At its core, they
were building a decentralized economy. And the
foundation of any economy is its currency. The
core idea was that for crypto to be useful for
daily life, you needed a currency that didn't
fluctuate wildly. If I pay you for a service
in Bitcoin today and tomorrow Bitcoin drops 20
percent, I've essentially overpaid or you've
lost a huge chunk of value. Commerce needs stability.
OK, so they needed a stablecoin. Now, usually
when I think of a stablecoin, I think of something
like USDC or back in the day Tether. Right. And
the model for those is simple. I like to call
it the vending machine model. You put a real
U .S. dollar into the machine, which is a bank
account audited by a firm, and the machine spits
out one digital dollar token. One for one. One
for one. If you want your real dollar back, you
put the digital dollar back in the machine. It's
backed, or at least it claims to be, by real
cash and U .S. treasuries. But Terra didn't want
to do that. No. To them, that's centralized.
That requires trusting a company, Circle or Tether,
to actually hold the dollars. It requires trusting
the traditional banking system. Terra wanted
to be purely decentralized. They wanted money
made from thin air, essentially, but backed by
math and economic incentives rather than a vault
full of cash. Okay, this is where we need to
get into the weeds. Yeah. Because this is the
heart of the whole thing. The algorithmic stablecoin.
The burn and mint equilibrium. Every time I try
to explain this to friends, my eyes glaze over
halfway through. Help us visualize this. Okay,
let's strip away all the code and the jargon.
Let's use an analogy. Imagine a teeter totter
on a playground. a seesaw i'm with you a teeter
-totter on the left seat of the teeter -totter
sits the stable coin terra usd or ust its job
is to stay perfectly level to hover exactly at
the height of one dollar it should never go up
never go down it's the boring stable side okay
ust is on the left on the right seat sits the
variable token lna luna is the shock absorber
it's allowed to go up and down like crazy it's
designed to be volatile So Ulanae takes all the
volatility so the USD doesn't have to? Exactly.
Now, how do they stay balanced? How do they talk
to each other? They are connected by a special
rule, a mechanism in the code that allows you,
the trader, to always swap one for the other
at a fixed value of $1. Always. Even if the price
on an exchange like Binance is totally different.
That is the absolute key. This protocol, the
core code, always, always values one UST at exactly
$1. It doesn't care what the open market says.
It's a hard -coded assumption. So let's play
on a scenario. Let's say there's huge demand
for UST. Everyone wants it, maybe to put it into
a savings protocol we'll talk about later. The
price on the open market shoots up to, say, $1
.01. Okay, so it's trading at a premium. UST
is worth $1 .01. Right. Now you, the savvy arbitrage
trader, see a free money opportunity. You can
go to the protocol with $1 worth of Lunae. Let's
say Lunae is worth $100 a token. You take 11
hundredths of your Luna Day token, you give it
to the protocol, and you say, burn this. Burn
it? You mean delete it? Precisely. You send it
to a wallet no one can access. It's gone forever.
And in exchange for burning that $1 worth of
Lunae, the protocol mints, it creates out of
thin air one... brand new UST token for you.
OK. So I burn my Lunanay. I get one UST. Which
you can immediately go and sell on the open market
for a dollar and one cent. You just made a penny
of profit almost completely risk free. A penny
doesn't sound like much. It isn't. But do it
with 100 million dollars. Have a computer do
it a thousand times a second. That is arbitrage.
And now think about the effect of what you just
did. You created more UST. You minted it, which
increases the total supply. And what happens
in economics when supply goes up? Price comes
down. Price comes down. So the army of arbitragers
all chasing these tiny profits naturally push
the price of UST back down to one dollar. The
system self -corrects. OK, that makes a weird
kind of sense. High demand leads to more supply.
Price stabilizes. What about the other direction?
This seems like the important one. What if people
panic and sell UST? and the price on the open
market drops to 99 cents this is the dangerous
side of the teeter -totter this is where the
whole thing can break so if ust is trading on
the open market at 99 cents the arbitrage opportunity
is reversed okay you can go into the market buy
a ust for just 99 cents then you take that ust
to the protocol and say i want to swap this The
protocol, remember, is hard -coded. It says,
sure, I value this UST at $1. So you burn the
UST, and the protocol mints you $1 worth of brand
-new Lunanay. So I spent 99 cents, and I get
$1 worth of Lunanay. I can immediately sell that
to Lunanay on the market, and I've made a penny.
Exactly. And in doing so, you burned the UST.
You took it out of circulation. You decreased
the supply. Lower supply means the price should
go up, in theory, back to $1. So the whole system
relies on these greedy traders acting in their
own self -interest. They aren't trying to save
the protocol. They're just trying to make a quick
buck. And in the process, they keep the peg stable.
In theory, yes. When you draw it on a whiteboard,
it's an elegant piece of game theory. It's beautiful
even. But there is a huge, massive hidden assumption
here, a fatal flaw that everyone chose to ignore.
Which is? The system assumes that L &A always
has value. And not just some value, but enough
market capitalization to absorb all the UST that
might want to exit. Because you're paying for
the UST with newly minted L &A. Right. Remember,
when you are saving the peg in that downward
scenario, you are minting LNA. You're creating
more of it. If you mint more LNA, the supply
of LNA goes up. Which usually means the price
of LNA goes down. Supply and demand. Right. So
you are essentially printing your own company's
stock to buy back your own company's debt. If
LMA is valuable, if it has a market cap of $40
billion like it did at its peak, it can easily
absorb a few hundred million dollars of shock.
The price might dip a little, but it holds. But
what if LMA's price starts crashing at the same
time? What if people lose faith in the shock
absorber itself? Then you're in deep, deep trouble.
Because to get that same $1 of value to bail
out one U .S. You have to get more and more and
more LNA as its price falls. Precisely. It's
a reflexive loop. And we will see exactly how
that math plays out in the crash section. But
for a few years, nobody looked at the downside.
They only saw the upside. Because the ecosystem
wasn't just tokens. It was exploding with applications.
They were building that whole city on the blockchain,
you mentioned. They were. They were really good
at building an ecosystem to create demand for
UST. They had the mirror protocol, which was
kind of brilliant and also, you know, wildly
illegal. What did it do? It allowed people to
trade synthetic stocks. You could deposit UST
and in return, you'd get a token that tracked
the price of, say, Tesla stock or Apple stock.
So you could get exposure to the U .S. stock
market without ever leaving the crypto world.
Exactly. The SEC hated it, obviously, because
it bypassed all securities laws. But for users
in countries without easy access to U .S. markets,
it was a killer app. And then there was Chai.
This was the thing that always gave Terra so
much credibility. I remember reading all these
articles saying Terra is the only crypto actually
being used for real payments by real people.
That was the narrative. Daniel Shin's app, Chai,
was a popular payment service in South Korea,
and they claimed to be processing millions of
transactions on the back end using the Terra
blockchain. The story was, look, grandma in Seoul
is buying groceries with crypto and she doesn't
even know it. It provided this shield of real
world utility. It made it seem less like a financial
game and more like real technology adoption.
It was the perfect story. But as we later find
out during the investigations by Korean prosecutors,
much of that claimed volume was. let's say, questionable.
The connection to the blockchain wasn't as deep
or as real as they claimed. We'll get to the
fraud allegations. But before we do, we have
to talk about the hook, the thing that really
poured gasoline on this fire. Because a clever
algorithm is nice, but it doesn't get you to
a $40 billion market cap on its own. You need
something more primal. You need greed. You need
the anchor protocol. Anchor was the black hole
that sucked in all the liquidity in the crypto
market. It was, on the surface, a lending and
borrowing protocol launched in March 2021, but
really it only had one feature that mattered.
The savings account. And I use air quotes because,
well, tell us the number. 19 .45 % APY. Let's
call it 20%. 20 % interest. And this wasn't a
fluctuating rate, not initially. It was marketed
as a stable, predictable 20%. Now, let's contextualize
this for a second. In 2021, the Federal Reserve
interest rate was new zero. I remember my savings
account at Wells Fargo was paying, I think, 0
.01%. Right. You were actively losing money to
inflation by keeping it in a bank. And here comes
Duke Kwan and Terra saying, give me your dollars,
convert them to our stablecoin UST, park them
in this protocol called Anchor, and we will pay
you 20 % a year. It was irresistible. It was
the best marketing tool ever invented. And it
wasn't just for crypto bros. We are talking about
regular people. We are talking about fintech
startups that built their entire business model
on the back end of Anchor. They take customer
to p***. deposits, promised them 8 % yield, put
it all in Anchor to get 20%, and pocket the difference.
So people were using this who didn't even know
what a blockchain was. They just thought they
found a high -yield savings account. A huge number.
At its peak, Anchor had something like $17 billion
in deposits. Most of the entire supply of UST
was locked up in Anchor. But hold on. I mean,
it's a fundamental question. How do you generate
20 % risk -free? If I walk into a bank and ask
for a loan, they charge me maybe 5 % or 6 % interest.
If Anchor's paying depositors 20%, they must
be charging borrowers. What? 25%, 30%. Who's
borrowing money at 30 %? Nobody. That was the
problem. The borrowing demand on Anchor was nowhere
near high enough to pay the depositors. The protocol
was earning maybe 5%, 6 % from lending and staking
rewards, but it was paying out 20%. The math
just didn't add up. So where was the extra 14,
15 % coming from? It was subsidized. It was coming
directly from Terraform Labs and later the Luna
Foundation Guard. They created something called
the Yield Reserve, and they just dumped hundreds
of millions of their own dollars into it. So
it was a marketing budget. It was purely a customer
acquisition cost. They were burning their own
cash to pay out that 20 % just to get people
to buy and hold UST. The goal was to get UST
so big, so integrated into the crypto economy
that it would become too big to fail. So they
were literally paying people to use their money.
Yes. And critics saw this. There were voices,
loud voices on Twitter and in crypto media saying
this is a Ponzi structure. They laid it out perfectly.
If the only way you can pay the yield to existing
investors is by bringing in new money or by running
your own reserves, that is the definition of
an unsustainable system. Eventually, the reserves
run dry. And how did Duquan respond to these
critics? Because this is where his personality
becomes a major part of the story. Duquan was
aggressive. That's the polite word. He was a
prolific tweeter. His handle, ironically, was
at Spablequan. And whenever anyone with a serious
following questioned the mechanics, whenever
anyone asked, hey, what happens when the yield
reserve runs out? He would mock them. He would
belittle them. He had that famous line. I don't
debate the poor on Twitter. I don't debate the
poor. Just imagine the CEO of a major financial
institution saying that. Jamie Dimon or something.
It's unthinkable. It is. But in the bubble of
crypto in 2021, it worked. It created a cult
of personality. If you held ONA, you were a lunatic.
That was the actual name for the community. And
they viewed Duquan as this genius god king who
had figured out how to solve money. Any criticism
was just FUD fear. uncertainty and doubt. It
was dismissed as noise from people who were just
salty. They missed the boat. And the hubris wasn't
just on Twitter. It spilled out into the real
world. I mean, the Washington Nationals deal.
Oh, that was peak bubble behavior. This was February
2022. We are now just three months before everything
collapsed. Terraform Labs signs a massive sponsorship
deal with the MLB team, the Washington Nationals.
For how much? $38 .5 million. Wow. A five -year
deal. They rebranded the premium lounge right
behind home plate as the Terra Club. There were
ads for a UST in a baseball stadium. They were
trying to market an algorithmic stable coin to
mainstream sports fans. And the way that deal
happened is wild, too. Kaywon proposed it to
the community for a governance vote, right? Yes,
that was the veneer of decentralization. But
he didn't even say which team it was. The proposal
just said something like a sponsorship opportunity
with a sports franchise in one of the four major
American leagues. He basically said, trust me,
it's good marketing. Give me the money. And the
community, the lunatics, blindly voted yes. They
authorized spending $38 million of the community
treasury on a mystery box. That is the definition
of too much money, too little diligence. But
even as they were buying baseball lounges, behind
the scenes, the cracks were starting to show.
They knew the algorithm wasn't bulletproof. They
did. In January 2022, you start to see a subtle
pivot in their strategy. They realized that if
a massive panic happened, a true bank run, the
mint and burn mechanism might not be fast enough
or strong enough. Lunae's price might crash too
hard, too fast. So they created a new entity,
the Luna Foundation Guard. Or LFG. A nonprofit
based in Singapore. Correct. And the stated goal
of the LFG was to build a war chest, a reserve
of assets that were not Lunanay or UST. They
wanted hard collateral, exogenous collateral.
So they started buying Bitcoin. Aggressively.
Very aggressively. Caron went on podcasts and
said his goal was to become the largest single
holder of Bitcoin in the world, second only to
Satoshi Nakamoto. By early May 2022, just before
the crash, they had accumulated over 80 ,000
Bitcoin. Which was worth how much at the time?
About $2. And the plan was, if the peg breaks,
if our algorithm fails, we'll sell all this Bitcoin
to buy UST off the market and prop up the price.
Exactly. It was a backstop. It was an emergency
fund. But think about the irony of that. They
spent years, years saying our algorithm is superior.
We don't need collateral like those other guys.
And then right at the end, they panicked and
bought $2 .5 billion worth of collateral. It's
like a tightrope walker who spends the whole
show bragging about how he doesn't need a net.
And then five minutes before the grand finale,
he quietly asks his assistant to go and put a
mattress down below. A mattress that turned out
to be the size of a postage stamp compared to
the height of the fall. So let's move to May
2022, the collapse. Because this wasn't a slow
decline. This was a free fall. It was a cliff.
And we can pretty much trace the trigger event.
It started over the weekend of May 7th and 8th.
The broader crypto market was already jittery.
The Fed was raising interest rates. Things were
looking shaky. But then a series of massive sell
orders hit the main UST liquidity pools on an
exchange called Curve. Curve is a decentralized
exchange where people mostly swap stablecoins
with each other. Exactly. It's the main plumbing
for stablecoin trading in DeFi. Someone, and
we still debate exactly who, though later evidence
points towards some large trading firms unwinding
their positions, started dumping hundreds of
millions of dollars of UST onto the market in
a very short period. So suddenly there's way
more UST being sold. than being bought and the
peg slipped it wasn't a catastrophe at first
it went to 99 cents then 98 cents now remember
the arbitrage mechanism we talked about right
the traders should step in buy the cheap ust
at 98 cents Burn it with the protocol for a dollar's
worth of LNA and make a profit. And they tried.
For a little while, they did. But the selling
pressure was just too high. It was a tidal wave.
There was too much UST flooding the exit all
at once. The arbitrageurs couldn't keep up. And
this is where the death spiral mechanics took
over. Walk us through the math of the spiral.
Why did it get so bad so fast? Okay. So, to save
the peg, the protocol has to mint LNA. If I come
with one UST that's worth, say, 90 cents on the
market, the protocol still owes me $1 worth of
Lunay. When Lunay is trading at $80 a token,
which it was right before the crash, the protocol
only needs to mint a tiny fraction of a Lunay
token 180th to pay me my dollar. Right. It's
a small amount of new supply. The dilution is
minimal. But as the panic set in and the peg
broke more severely, people started selling Lunanay,
too. They saw the system was failing. They got
scared. They dumped their Lunanay. So the price
of Lunanay dropped from $80 to, say, $40. Okay,
so now to pay me my $1, the protocol has to mint
twice as much Lunanay as before. Exactly. And
that new Lunanay hits the open market, further
diluting the supply, which pushes the price down
even more, to $20. Now you have to mint four
times as much Lunanay to cover that same $1 of
UST debt. Then Lunanay hits $1. Now you are minting
one full Lunanay token for every single UST being
redeemed. And then Lunanay hits $0 .10. Now you
are minting 10 Alunays for every UST. Do you
see the exponential curve? As the price of UNA
approaches zero, the amount of new UNA you have
to mint to cover the debt approaches infinity.
It's hyperinflation on steroids. A feedback loop
from hell. It was terrifying to watch in real
time. The supply of LNA went from about 350 million
tokens in circulation to get this 6 .5 trillion
tokens in the span of a few days. The algorithm
was just mindlessly printing LNA to try and cover
the debt. But the debt was toxic and the currency
it was printing was becoming worthless. So what
was the Luna Foundation Guard doing with that
$2 .4 billion of Bitcoin, the emergency fund?
They deployed it. On May 9th and 10th, they completely
emptied the vaults. They sent the Bitcoin to
exchange. like Binance and Gemini and started
market selling it to buy UST. Did it work? Did
it stabilize the price? For a few hours, it created
a bounce. The peg went from a low of around 60
cents back up towards 90 cents. There was a moment
of hope. But the market simply absorbed all that
capital and kept selling. Two and a half billion
dollars just vanished. It was like trying to
fill the Grand Canyon with a garden hose. And
worse, by dumping all that Bitcoin so quickly,
They crashed the price of Bitcoin, too. So the
entire crypto market tanked along with them.
I remember looking at Twitter and Reddit during
those days. It was pure panic. There were suicide
hotlines being pinned to the top of the terrorist
subreddits by the moderators. It was horrific.
You had people who had put their life savings
into Anchor because they were told it was a stable
savings account. They didn't think they were
gambling on some altcoin. There were people in
their 60s who put their retirement in. They woke
up and saw their $500 ,000 portfolio was now
worth $500. It was life -altering destruction.
And the response from Duquan and the team? It
was chaos. Duquan was tweeting things like, deploying
more capital steady lads. But on May 13, So the
dust settles. $45 billion is gone. UST is trading
at a few cents. LNA is effectively zero. What
happens next? Where do you even begin to pick
up the pieces? Well, first comes the confusion
and the anger. Then comes the rebranding attempt.
About two weeks later, on May 25th, Terraform
Labs and Dugaquan push a plan to fork the chain.
Meaning they split the software into two different
versions. Yes. They basically said, OK, that
old chain with the algorithmic stablecoin, that's
broken. It's a failure. We're going to leave
it behind. We'll rename it Terra Classic and
its token will be LUNC. LUNC. Got it. And we
are going to launch a brand new chain, a fresh
start called Terra 2 .0, and the new token on
that chain would take the original Elune ticker.
But crucially, the new chain didn't have the
stablecoin. They completely abandoned the UST
concept. So it was a tacit admission that their
core product, their whole grand experiment, was
fundamentally flawed. It was a complete admission
of failure. They airdropped the new LNA tokens
to holders of the old LNC and UST to try and
make them whole. But it was pennies on the dollar.
And did the market forgive them? Did Terra 2
.0 succeed? Not really. The new LNA token launched,
spiked for a day as people sold the airdrop and
then crashed again. Trust is a very hard thing
to rebuild when you've just incinerated the entire
GDP of a small country. But while the investors
were licking their wounds, the founders were
making exit plans. This brings us to the manhunt,
because this story turns from a financial disaster
into a crime thriller very, very quickly. It
does. And the authorities were looking at both
founders. Let's start with Daniel Shin. He tried
to play the I wasn't involved card. He put out
statements saying he had stepped away from Terraform
Labs years prior to focus on Chai. But the prosecutors
in South Korea didn't buy that. Not for a second.
They found regulatory filings that showed he
still held significant ownership in Terraform
Labs right up until the end. And they raided
the offices of Chai. They alleged that Chai wasn't
actually using the blockchain for payments in
the way they claimed. They were just mirroring
data onto the chain after the fact to create
the illusion of volume. It was alleged fraud
on top of the catastrophic failure. He was eventually
indicted in South Korea. And then there's the
main character, Do Kwon. The captain of the ship.
Just days before the crash. April 30th, 2022,
to be exact, Do Kwon filed paperwork in South
Korea to dissolve the Korean entity of Terraform
Labs. Wait, say that again. April 30th. That's
barely a week before the depegging started. The
timing is, to put it mildly, incredibly suspicious.
It strongly suggests he knew a collapse was imminent,
or at least highly likely. He had already moved
his family to Singapore. And then, as the investigations
heated up in late 2022, he went dark. He vanished.
But not completely silent. He did that bizarre
interview. The coinage interview in August 2022.
It was surreal. He's on camera looking relaxed
in a T -shirt, maybe a little humbled, but still
with that undercurrent of arrogance. He admitted
his faith in the project was super irrational,
but he flatly denied it was a Ponzi scheme. He
tried to frame himself as a failed inventor,
not a fraudster. While he was a fugitive. While
he was an international fugitive. Interpol issued
a red notice for his arrest. South Korea revoked
his passport. He was technically an undocumented
person moving between countries. And he was on
the run for months. Months. There were rumors.
He was in Dubai, Russia, Serbia, of all places.
Turns out he was in Serbia for a while. But in
March of 2023, the net finally closed in. Podgorica
Airport, Montenegro. This is straight out of
a Bourne movie. A private jet is waiting on the
tarmac, ready to fly to Dubai. Do Kwan and his
CFO, Han Chang -joon, walk up to the passport
control desk? And what documents do they hand
the border control officer? Costa Rican passports.
Fake ones. High quality forgeries, but fake nonetheless.
The border guard gets suspicious, runs the numbers,
and it comes back as fraudulent. They search
their luggage. They find another set of passports,
Belgian ones, also fake. And a stash of electronics.
Why do you need two sets of fake passports from
different countries if you're just an innocent
startup founder whose project failed? You don't.
That was the smoking gun that proved intent to
flee, not just travel. They were arrested on
the spot. And that kicked off this massive diplomatic
tug of war. The U .S. wanted to extradite him
for securities fraud. South Korea wanted him
for financial crimes. Montenegro had him for
the fake documents. She's got a good amount of
time in a Montenegrin prison while they fought
over who got to prosecute him first. Which I
hear is not quite the same level of luxury as
the Terra Club lounge at the baseball stadium.
Definitely not. And finally, looking back from
our perch here in 2026, we have the resolution
to that legal battle. We do. Terraform Labs itself
filed for Chapter 11 bankruptcy in January 2024,
but the real hammer fell on Duquan personally.
He was eventually extradited to the U .S. and
the trial. Well, it never got to a full trial.
He took a plea deal. In August 2025, Duquan pleaded
guilty to two counts of fraud. And the sentence.
On December 11, 2025, he was sentenced to 15
years in federal prison. He also had to forfeit
$19 million of personal assets. And the company
had billions in civil judgments against it that,
of course, it could never pay. 15 years. It's
a long time, but for $45 billion in damage. I'm
sure there are victims who feel that's light.
The U .S. prosecutors argued for more, but the
judge weighed the plea deal. Still, it sends
a clear message. You can't just code your way
out of securities fraud. Eventually, the law
catches up. We can't wrap this up without talking
about the enablers, because Duquan didn't do
this alone. He had help, whether witting or unwitting,
from some of the biggest players in the industry.
This is the part of the story that makes the
big institutional players squirm. Let's talk
about Jump Trading. Jump is a massive, secretive,
high -frequency trading firm. They're like the
plumbing of both the stock market and the crypto
market. In October 2024, the SEC reached a settlement
with Jump Trading for $123 million. And the details
that came out of that settlement were damning
for the Terra narrative. What did they do? The
SEC alleged that way back in May of 2021, a full
year before the final collapse UST had de -pegged
before, it dropped to something like 94 cents.
The algorithm failed then. Wait, so the death
spiral almost happened a year earlier? It almost
did. But nobody knew because according to the
SEC, Jump Trading secretly stepped in. They made
a deal with Do Kwon. Jump would buy massive amounts
of UST on the open market to prop up the price.
They artificially restored the peg. So they painted
the tape. They created the illusion that the
algorithm worked and had self -corrected when
in reality it was just a secret centralized bailout.
Exactly. And in exchange, Terraform Labs gave
Jump's sweetheart deals on LNA tokens at a huge
discount, allowing them to make over a billion
dollars. It was a symbiotic relationship built
on deception. If investors had known in 2021
that the algorithm had already failed once, do
you think they would have poured billions more
into Anchor in 2022? No way. That's a material
fact that was hidden from the market. And what
about Binance? The 800 -pound gorilla of crypto
exchanges. They were an early investor in Terraform
Labs. They listed UST and LNA. They promoted
Anchor Protocol's 20 % yield on our platform,
calling it safe and stable. Which it wasn't.
Which it was not. There have been numerous class
action lawsuits in the U .S. and formal complaints
in countries like France accusing Binance of
misleading advertising. It reinforces the idea
that the exchanges weren't neutral platforms.
They were active participants profiting from
the trading volume. even as the ship was clearly
taking on water. So we have the crash, the manhunt,
the prison sentence, and the regulatory crackdown.
I remember South Korea revived its special financial
crimes unit, the Grim Reaper of Uido, just for
this case. That name is so metal. But yes, the
regulatory landscape we live in today in 2026
is strictly defined by the Terra collapse. Algorithmic
stablecoins are effectively banned or regulated
out of existence in most major jurisdictions
now. So let's land this plane. We've been through
the mechanics, the madness and the aftermath.
What is the takeaway? Why does this story matter
to the listener who might just have a 401k and
has never touched crypto? I think there are two
massive enduring lessons here. The first is what
I call the innovation trap. Explain that. We
live in a world, especially in tech and finance,
that fetishizes complexity. If someone explains
an investment to you and uses a bunch of jargon
words like burn and mint equilibrium or algorithmic
peg or synthetic derivatives flywheel, your brain
tends to shut off and you assume, wow, they must
be smarter than me. This must be legitimate.
It uses complexity to mask a lack of fundamental
value. Exactly. Innovation is great, but financial
gravity is a real undefeated force. If an investment
claims to be stable but isn't backed by anything
other than faith in its own future growth and
a complex algorithm, it's not an investment.
It's a confidence game. And the second lesson?
The yield warning. This is the one I want everyone
listening to burn into their brain. 20%. The
golden number. If someone, anyone, anywhere offers
you 20 % interest when the risk -free rate, what
you can get from the government, is 1 % or 2
% or even 5%, you need to run in the other direction.
There is no such thing as a risk -free 20 % return.
It does not exist. The risk is just hidden. And
if you don't know where the yield is coming from?
You are the yield. Your new investment money
is being used to pay the interest to the people
who got in before you. You are the yield. That's
a chilling thought. It's the simple truth. The
people who made money on Terra were the early
investors and the ones who got out before the
music stopped. The people who provided the exit
liquidity were the regular folks who came in
at the end chasing that impossible 20 % promise.
It's a hard lesson, but at a very, very high
price. A $45 billion price and 15 years of Duquan's
life. So here's the final thought I want to leave
you with. With Duquan in prison, with the enablers
having paid their fines, and with Terra Classic
still... Bizarrely, trading is a kind of zombie
meme coin. Have we actually fixed the structural
issues in finance that allowed this to happen?
Or are we just waiting for the next charismatic
founder with a complex revolutionary algorithm
to repeat the whole cycle all over again? That
is the question, isn't it? It is. Thank you for
taking us through the math and the madness of
this story. It was a pleasure. And to you, the
listener, stay curious, but stay skeptical, especially
if someone offers you 20 % interest. We'll see
you on the next Deep Dive.