Do Kwon Explains His Role In Failed Stablecoin Basis Cash

Zack Abrams

August 16, 2022


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Inside Terra's Collapse (Community Cut)

Do Kwon, the co-founder of Terraform Labs and the UST stablecoin that collapsed this past May, has confirmed that he was involved in the failed stablecoin Basis Cash under the pseudonym “Rick Sanchez.”

Basis Cash, which ran on the Ethereum blockchain, was a stablecoin that launched in late 2020, before Terra’s stablecoin UST launched on its own blockchain. Despite initial success, Basis Cash failed after months of its existence to consistently maintain its dollar peg and was abandoned by its developers and community.

CoinDesk initially reported on Kwon’s undisclosed relationship to the project earlier this year, though Kwon himself declined to comment. Now, Kwon has confirmed his involvement in Basis Cash in an interview with Coinage, but denies that the stablecoin was his idea. He claims to have helped mostly with marketing and community building for the project. 

“We acquired a young team that was working on a staking derivatives protocol on Cosmos. We initially staffed this entire five- or six-person team to work on the Anchor side of things,” said Kwon. “Now, one of these [six] happened to be very brilliant and contributed a significant amount of work to the Anchor protocol, but in terms of the other five, they lost interest pretty quickly and they started to not want to do work.” 

Kwon claims that one of those five employees was inspired by Basis, an earlier stablecoin project that would give Basis Cash its name, and “yield farms” that were gaining popularity on the Ethereum blockchain at the time. Yield farming remains popular in the world of decentralized finance, or DeFi, and generally involves lending tokens to a protocol in order to capture high interest rates. 

“He said he had a good idea for launching something that is actually pretty adjacent to what Terra had been doing for a year, but tapping into the larger community of Ethereum,” said Kwon. “And that idea was Basis Cash.” 

Kwon claims that while he was initially supportive of the team launching the Basis Cash venture, he had qualms with the model they’d designed. “Back at that time, I felt like it uniquely didn’t make sense,” he said. 

The team of Korean developers had latched on to pseudonymous identities centered around the American TV show Rick and Morty, which follows the mad scientist Rick Sanchez as he takes his grandson Morty on absurd adventures through time and space. “Their leader was this guy named ‘DeFi Morty,’” said Kwon. “The issue was, they couldn’t really speak English all that well because they were based out of Korea … they asked me to see if I could talk to some reporters or other community members initially, assuming the identity of Rick Sanchez.” 

Kwon explained that he chose to work under a pseudonym to protect the identities of the developer team, which was flaunting regulators who might want to shut down Basis Cash — just as they’d shut down the original Basis project. “I helped them with the initial community building, talking on [messaging app] Telegram a little bit, talking in the voice of what Rick Sanchez would’ve sounded like,” said Kwon. 

Kwon argues that investors in Basis Cash had understood the risks of a depeg. “I think it was an interesting experiment,” said Kwon. “I think [the developers] were pretty upfront in the Discord and Telegrams about, ‘yeah, this thing can depeg,’” said Kwon. “Most people that were buying these algorithmic stablecoins were DeFi degens [slang for crypto traders] that already made a lot of money in the Ethereum ecosystem so they understood those risks. They participated because they thought it was interesting.”

After a “fair launch,” Basis Cash had enough success to convince its developers to leave Terraform Labs, according to Kwon. “Right after they launched Basis Cash, it started to do really well, so actually I think the Basis Share market cap far exceeded LUNA’s right after they launched. So they said, ‘Alright, we’re just going to run this,’ and they quit their company and started to run it solo.”  

Kwon says that following the split, he had issues with the decisions made by Basis Cash’s developer team, but that “for a first effort, they did a lot of things right.” 

While Kwon characterized the investors in Basis Cash as “DeFi degens,” he acknowledged that UST’s collapse hurt retail investors who were less familiar with crypto as well. “[A stablecoin] is supposed to be a currency,” Kwon said. “As it starts to build up scale, I think the type of people that get exposed to using a currency becomes less and less sophisticated.”

He also recognized the difference in scale caused by UST’s depegging. “The pain was absolutely larger.”