UST’s Do Kwon Was Behind Earlier Failed Stablecoin, Ex-Terra Colleagues Say

Do Kwon, the CEO of Terra creator Terraform Labs, was 1 of the pseudonymous co-founders down the failed algorithmic stablecoin Basis Cash, CoinDesk has learned.

Basis Cash (BAC) was a intimately watched revival successful decentralized concern (DeFi) circles erstwhile it launched connected Ethereum successful precocious 2020, conscionable earlier the motorboat of TerraUSD (UST), Terra’s flagship stablecoin. Like UST, BAC sought to support a $1 peg done code, not collateral.

But it failed: The token of this long-abandoned task ne'er achieved its people of dollar parity, sank beneath $1 successful aboriginal 2021 and was trading good beneath a penny connected Wednesday. Now past appears to beryllium repeating: Over the past 3 days, UST sank precipitously beneath its peg, going arsenic debased arsenic 27 cents successful aboriginal greeting U.S. hours Wednesday.

UST’s depegging has shocked crypto markets and regulators alike arsenic the once-$15 cardinal stablecoin has continued its downward spiral. While BAC’s $54.5 cardinal footprint was acold smaller successful impact, it offers a humanities information constituent for observers grappling with the feasibility of algorithmic stablecoins.

Hyungsuk Kang, a erstwhile technologist astatine Terraform Labs (TFL), said Basis Cash was successful information a broadside task from immoderate of Terra’s aboriginal creators, including himself and Kwon. Kang yet near TFL to physique a Terra rival called Standard Protocol.

“Basis Cash wasn’t tested astatine the moment, and we weren’t adjacent sure” it would work, Kang said. Kwon “wanted to conscionable trial it out. He said that this was a aviator task for doing that.”

Another Basis Cash builder who spoke to CoinDesk connected information of anonymity confirmed that Do Kwon and TFL employees were down the project.

Both Kang and the anonymous worker archer CoinDesk Kwon was “Rick Sanchez,” the pseudonymous co-founder. CoinDesk besides reviewed interior “Basis Cash Korea (BCK)” chat logs successful which Kwon alludes to himself arsenic “Rick.”

(Kwon and his Basis Cash co-founder, “Morty” borrowed their pseudonyms from the fashionable animated TV amusement “Rick and Morty.”)

Kwon did not respond to CoinDesk’s requests for comment.

Basis Cash ne'er reached the heights of different Kwon-linked crypto projects. Its full worth locked (TVL) concisely peaked astatine $174 cardinal successful February 2021, 2 orders of magnitude beneath Terra’s $30 cardinal TVL earlier this week’s historical selloff.

Revealing the existent sanction down an online pseudonym (even a long-discarded one) is not a determination CoinDesk takes lightly. Our default position is to respect the privateness of pseudonymous actors with established reputations nether their well-known handles unless determination is an overwhelming nationalist involvement successful revealing their real-world identities.

In this case, determination is specified nationalist involvement arsenic Kwon’s UST stablecoin decease spirals, wreaking havoc crossed the broader cryptocurrency market. Amid this precarious situation, investors merit to cognize that UST was not Kwon’s archetypal effort astatine making an algorithmic stablecoin work.

Basis Cash and its committedness of an algorithmic stablecoin predated crypto Rick and Morty.

An anonymous squad of builders – mostly employees of Terraform Labs, according to chat logs reviewed by CoinDesk – modeled Basis Cash aft an earlier task called Basis (formerly known arsenic Basecoin).

Basis, an erstwhile task superior darling, raised $133 cardinal earlier shutting its doors successful 2018 implicit regulatory concerns. Founder Nader Al-Naji past said “there would beryllium nary way” for Basis’ peg attraction tokens to debar securities designations; helium shuttered the task alternatively than combat it retired successful court.

(Al-Naji would aboriginal motorboat a arguable crypto startup nether a pseudonym earlier yet doxxing himself nether pressure.)

But Basis’ algorithmic ideals continued to interval astir stablecoin circles close connected done to the vigor of DeFi summertime 2020, erstwhile Rick and Morty stepped in. Kwon and different algorithmic stablecoin adherents person agelong argued that the DeFi abstraction needs a decentralized unchangeable currency without censorship hazard oregon cardinal points of failure. Such an attack contrasts with that of market-leading stables similar Tether’s USDT and Circle’s USDC, which support their $1 peg by (in theory) backing each integer dollar with their centralized treasuries.

“Yo degens, anyone retrieve what Basis was? It was 1 of the aboriginal ‘DeFi’ algorithmic stablecoins with precocious ambitions, but it was unopen down owed to SEC-related risks,” said Rick’s since-deleted Telegram relationship successful the Basis Cash Telegram transmission connected Aug. 20, 2020. “Today we’re bringing Basis backmost from the grave.”

Apparently intrigued by the aboriginal ideas down Basis, Do Kwon directed a prime radical of TFL employees to resurrect what yet became Basis Cash, Kang and different aboriginal TFL technologist say. The Korea-based task was envisioned arsenic a mode to trial retired the halfway concepts of the archetypal Basis without falling prey to U.S. regulatory pitfalls.

CoinDesk’s sources accidental Kwon deliberately distanced himself from the day-to-day operations of the project, though helium projected astir of the halfway ideas down Basis Cash and its underlying token model. Analogous to UST, which relies connected a token-burn mechanic involving its sister coin LUNA, BAC relies connected a bonding mechanics to support its $1 peg.

Kwon besides appeared to service arsenic a spokesperson for the task connected Twitter and different forums nether his “Rick” pseudonym (CoinDesk cannot corroborate whether others ever filled successful arsenic “Rick,” but Kang, the different Basis Cash builder, and chat logs suggest the moniker chiefly belonged to Kwon).

On its website, Basis Cash describes itself arsenic a “Decentralized Stablecoin with an Algorithmic Central Bank,” and successful a November 2020 interrogation with CoinDesk, “Rick” shared a imaginativeness for Basis Cash akin to that for UST.

“In the agelong term, we look guardant to seeing Basis Cash beryllium utilized wide arsenic a basal furniture primitive specified that determination is integrated request for the plus successful galore DeFi and commercialized settings,” helium said implicit Telegram astatine the time.

One of the archetypal examples of an algorithmic stablecoin to beryllium tested successful the wild, Basis Cash ne'er recovered its footing. Game mentation and astute contracts were expected to modulate BAC’s proviso to support it trading astatine the terms of $1, but the token ne'er managed to clasp connected to its dollar peg.

Even amid Basis Cash’s struggles, Kwon’s main relationship could beryllium spotted from clip to clip successful the project’s Telegram, sans pseudonym.

A idiosyncratic amazed to find Terra’s laminitis successful the Basis Cash Telegram radical erstwhile asked Kwon what helium was doing there.

“I similar studying caller things. Especially aged things that are caller again,” helium responded.

Zack Seward contributed reporting.