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Crypto Bros Need to Stop Proving Jamie Dimon Right

Do Kwon, co-founder and chief executive officer of Terraform Labs, in the company’s office in Seoul, South Korea, on Thursday, April 14, 2022. Kwon is counting on the oldest cryptocurrency as a backstop for his stablecoin, which some critics liken to a ginormous Ponzi scheme. (Bloomberg)

Do Kwon is not on the run. We know that because the cryptocurrency founder said so. Singapore authorities announced that he’s no longer in their country, a South Korean court issued a warrant for his arrest, and Interpol put out a Red Notice. But that doesn’t mean he’s ready to reveal his whereabouts, or his legal strategy to fight the charges.

Kwon’s outfit is called Terraform Labs. It’s one of dozens of blockchain startups built to reinvent the global financial system and challenge the fiat-based structure which has central banks at its core. Its spin on the theme was to build a stablecoin on top of its Terra blockchain.

Instead of being backed by holdings of a fiat currency like the more-famous Tether — which claims to hold one US dollar for each Tether minted — TerraUSD “achieves price-stability via an elastic money supply.” In its White Paper, the stablecoin’s instigators note that the extreme volatility of Bitcoin’s price is Terra’s raison d’etre.

At the core of how the Terra Protocol solves these issues is the idea that a cryptocurrency with an elastic monetary policy would maintain a stable price, retaining all the censorship resistance of Bitcoin, and making it viable for use in everyday transactions.

There’s just one, slight, $60 billion problem. The algorithm didn’t work. The peg didn’t hold. TerraUSD’s price collapsed, as did that of the associated Luna token. And holders of these tokens got wiped out.

That was in May, and now Kwon is on the lam. Except, he says he’s not. And he also says it’s nobody’s business where he is, unless you’re a friend, plan to meet, or are playing a location-based game (that last one is a joke, we think).

Running a bad business isn’t against the law. Losing $60 billion of customers’ money in itself is also not a crime. But authorities in Seoul are convinced he did something wrong, and seek to charge Kwon and five others for breaches of capital markets laws.

Having failed to get him to front up, South Korea went one further and asked Interpol to help, which they did, requesting “law enforcement worldwide to locate and provisionally arrest a person pending extradition, surrender, or similar legal action.”

This international game of cat and mouse isn’t a good look for Kwon, or crypto executives anywhere. 

For more than a decade, proponents have fought to shake off cryptocurrency’s image as a frontier for criminals, digital blackmailers, drug lords and international arms smugglers. Yet every time the head of a cryptocurrency outfit — legitimate or not — drags their feet on explaining what happened to their collapsed business, or fails to outline a legal defense to any criminal charges, they’re giving fodder to the naysayers.

“They are decentralized Ponzi schemes,” Jamie Dimon, chief executive officer of JPMorgan Chase & Co., told Congress last week. It’s not helpful to Kwon’s cause, or that of cryptocurrencies more broadly, that his refusal to give his whereabouts comes just as a poster child for the old-school, central-bank run fiat system points fingers at an entire industry.

To be fair to Kwon, he’s not alone. Numerous other trailblazers have faced allegations and prosecution. Some were outright scoundrels, some sailed too close to the wind, and others were victims of regulators’ inability to keep up with changing times. And it remains an ongoing debate which of these categories some of the more high-profile cases belong.

Tether and its affiliated exchange, Bitfinex, last year settled charges that the stablecoin wasn’t fully-backed, as it had claimed, and that it had engaged in illegal commodity transactions. In another case, an employee of a different exchange was charged with insider trading. 

There’s plenty of illegal actions and weird shenanigans going on in the crypto universe to give ammunition to the detractors. The life and death of Gerald Cotten, founder of exchange QuadrigaCX, went from a tragic tale to a conspiracy theorist’s dream. Following his sudden death in India at age 30, it was revealed that Cotten had various aliases and had siphoned C$250 million ($183 million) out of the exchange into wallets whose passwords had been lost.

But crypto skeptics sometimes conveniently forget that infamous Ponzi schemer Bernie Madoff didn’t need new-fangled tools to bilk investors of $65 billion. And the Enron and WorldCom frauds were committed before Bitcoin was even invented.

Cryptocurrency is a new technology that attracts new business models and plenty of opportunists. That’s just how new industries work.

The oil boom of the late 19th century saw hundreds of wells sunk and dozens of schemes collapse, wiping out innumerable investors. Yet history negates the early claim that oil, as a commodity, and the industry that followed, are a total scam. Indeed, many at the time felt that the liquid dripping from underground coal seams was not enough to sustain a business.(1) In fact, the break-up of John D. Rockefeller’s Standard Oil neither crushed the company nor ended this new energy boom. After facing angry legislators and losing court battles in the early 20th century, the business bounced back and rewrote history.

Cryptocurrencies have the same potential as oil to upend old industries and indelibly change the world. But to get there, the crypto barons need to face the music and show the world they’ve nothing to hide.

More From Bloomberg Opinion:

• Coinbase’s ‘End of Story’ Is Just the Beginning: Lionel Laurent

• Doge May Be a Hustle, But It’s the People’s Hustle: Tim Culpan

• Colonial Hackers Broke the Fundamental Bitcoin Rule: Tim Culpan

(1) Daniel Yergin’s “The Prize” details early misgivings in great color.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News.

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