"Venture Capital That Fueled Terra and Luna Boom Pulled Out Before Crash"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Venture capitalists who fueled the growth of Korean cryptocurrencies TerraUSD (UST) and Luna realized profits ahead of the crash, leaving ordinary investors to bear the brunt of the losses, the New York Times (NYT) reported on the 18th (local time).

The NYT reported that Do Kwon, CEO of Terraform Labs, overestimated Luna and Terra, and while their failure shocked some traders, certain investment firms cashed out early. The NYT stated, "Most of the pain from the crash was borne by ordinary traders."

Pantera Capital, a hedge fund that initially invested in Terraform Labs, gradually sold about 80% of its Luna holdings last year, earning approximately $170 million, about ten times its initial investment. Paul Veradittakit, an investor at Pantera Capital, expressed regret over the recent crash, saying, "Many small investors lost money, and many institutional investors were likely affected as well."

Venture capital firm Hack VC, focused on cryptocurrencies, sold its Luna holdings in December last year. Martin Baumann, founder of Hong Kong-based CMCC Global, also revealed that he sold his Luna holdings in March at $100 per coin. Baumann explained, "Concerns grew on all fronts?technology and regulation." The NYT reported that this venture capital firm did not disclose the scale of profits from the Luna sale.

The NYT analyzed, "CEO Kwon's rise was made possible by prominent financiers supporting a highly speculative financial product." Although questions were raised about the algorithmic technology underpinning the stablecoin from Terraform Labs' early days, the company received over $200 million in investments from well-known venture capital firms such as Lightspeed Venture Partners and Galaxy Digital between 2018 and 2021, which helped Luna's value swell to over $40 billion. This indicates that the value was expanded more on the reputation of famous financiers rather than the cryptocurrency itself being recognized for its intrinsic value.

Mike Novogratz, CEO of Galaxy Digital, showed strong support by tattooing a Luna-themed tattoo on his arm and sharing a photo on Twitter in January. A week after the crash, he broke his silence and acknowledged the failure of Terra and Luna. Novogratz said, "TerraUSD was an attempt to create an algorithmic stablecoin in the digital world. It was a big idea that failed," adding, "(The tattoo) will always remind me that humility is necessary in venture investing."