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

Basis Cash, an algorithmic stablecoin project founded by the anonymous “Rick” and “Morty” in 2020, was actually the work of Terraform Labs employees.

AccessTimeIconMay 11, 2022 at 3:15 p.m. UTC
Updated May 11, 2023 at 6:37 p.m. UTC

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

Basis Cash (BAC) was a closely watched revival in decentralized finance (DeFi) circles when it launched on Ethereum in late 2020, just before the launch of terraUSD (UST), Terra’s flagship stablecoin. Like UST, BAC sought to maintain a $1 peg through code, not collateral.

But it failed: The token of this long-abandoned project never achieved its target of dollar parity, sank below $1 in early 2021 and was trading well below 1 cent on Wednesday. Now history appears to be repeating: Over the last three days, UST sank precipitously below its peg, going as low as 27 cents in early morning U.S. hours Wednesday.

UST’s depegging has shocked crypto markets and regulators alike as the once-$15 billion stablecoin has continued its downward spiral. While BAC’s $54.5 million footprint was far smaller in impact, it offers a historical data point for observers grappling with the feasibility of algorithmic stablecoins.

Hyungsuk Kang, a former engineer at Terraform Labs (TFL), said Basis Cash was, in fact, a side project from some of Terra’s early creators, including himself and Kwon. Kang ultimately left TFL to build a Terra competitor called Standard Protocol.

“Basis Cash wasn’t tested at the moment, and we weren’t even sure” it would work, Kang said. Kwon “wanted to just test it out. He said that this was a pilot project for doing that.”

Another Basis Cash builder who spoke to CoinDesk on condition of anonymity confirmed that Do Kwon and TFL employees were behind the project.

Both Kang and the anonymous employee tell CoinDesk Kwon was “Rick Sanchez,” the pseudonymous co-founder. CoinDesk also reviewed internal “Basis Cash Korea (BCK)” chat logs in which Kwon alludes to himself as “Rick.”

An allusion to an alias? (Screenshot/BCK Telegram group)
An allusion to an alias? (Screenshot/BCK Telegram group)

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

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

Basis Cash never reached the heights of other Kwon-linked crypto projects. Its total value locked (TVL) briefly peaked at $174 million in February 2021, two orders of magnitude below Terra’s $30 billion TVL before this week’s historic sell-off.

Revealing the real name behind an online pseudonym (even a long-discarded one) is not a decision CoinDesk takes lightly. Our default position is to respect the privacy of pseudonymous actors with established reputations under their well-known handles unless there is an overwhelming public interest in revealing their real-world identities.

In this case, there is such public interest as Kwon’s UST stablecoin death spirals, wreaking havoc across the broader cryptocurrency market. Amid this precarious situation, investors deserve to know that UST was not Kwon’s sole attempt at making an algorithmic stablecoin work.

What was Basis Cash?

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

An anonymous team of builders – mostly employees of Terraform Labs, according to chat logs reviewed by CoinDesk – modeled Basis Cash after an earlier project called Basis (formerly known as Basecoin).

Basis, an erstwhile venture capital darling, raised $133 million before shutting its doors in 2018 over regulatory concerns. Founder Nader Al-Naji then said that “there would be no way” for Basis’s peg maintenance tokens to avoid securities designations; he shuttered the project rather than fight it out in court.

(Al-Naji would later launch a controversial crypto startup under a pseudonym before ultimately doxxing himself under pressure.)

But Basis’s algorithmic ideals continued to float around stablecoin circles right on through to the heat of DeFi summer 2020, when Rick and Morty stepped in. Kwon and other algorithmic stablecoin adherents have long argued that the decentralized finance space needs a decentralized stable currency without censorship risk or central points of failure. Such an approach contrasts with that of market-leading stablecoins like Tether’s USDT and Circle’s USDC, which maintain their $1 peg by (in theory) backing every digital dollar with their centralized treasuries.

“Yo degens, anyone remember what Basis was? It was one of the early ‘DeFi’ algorithmic stablecoins with high ambitions, but it was shut down due to SEC-related risks,” said Rick’s since-deleted Telegram account in the Basis Cash Telegram channel on Aug. 20, 2020. “Today we’re bringing Basis back from the grave.”

Apparently intrigued by the early ideas behind Basis, Do Kwon directed a select group of TFL employees to resurrect what eventually became Basis Cash, Kang and another early TFL engineer say. The Korea-based project was envisioned as a way to test out the core concepts of the original Basis without falling prey to U.S. regulatory pitfalls.

CoinDesk’s sources say Kwon deliberately distanced himself from the day-to-day operations of the project, though he proposed most of the core ideas behind Basis Cash and its underlying token model. Analogous to UST, which relies on a token-burn mechanic involving its sister coin LUNA, BAC relies on a bonding mechanism to maintain its $1 peg.

Kwon also appeared to serve as a spokesperson for the project on Twitter and other forums under his “Rick” pseudonym (CoinDesk cannot confirm whether others ever filled in as “Rick,” but Kang, the other Basis Cash builder, and chat logs suggest the moniker primarily belonged to Kwon).

On its website, Basis Cash describes itself as a “Decentralized Stablecoin with an Algorithmic Central Bank,” and in a November 2020 interview with CoinDesk, “Rick” shared a vision for Basis Cash similar to that for UST.

“In the long term, we look forward to seeing Basis Cash be used widely as a base layer primitive such that there is organic demand for the asset in many DeFi and commercial settings,” he said over Telegram at the time.

Lessons for UST?

One of the first examples of an algorithmic stablecoin to be tested in the wild, Basis Cash never found its footing. Game theory and smart contracts were supposed to regulate BAC’s supply to keep it trading at the price of $1, but the token never managed to hold on to its dollar peg.

By all outward appearances, Kwon had nothing to do the Basis Cash project. He has even made statements suggesting he was a critic:

But even amid Basis Cash’s struggles, Kwon’s main account could be spotted from time to time in the project’s Telegram, sans pseudonym.

A user surprised to find Terra’s founder in the Basis Cash Telegram group once asked Kwon what he was doing there.

“I like studying new things. Especially old things that are new again,” he responded.

Zack Seward contributed reporting.

UPDATE (May 11, 18:52 UTC): Adds section on Kwon’s Basis Cash Twitter criticisms.


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