Pether’s Collapse
The market’s attention shifted to Dao Group.
Dao Group was the largest construction company not only in China, but in the entire world. If it collapsed, the damage to the national economy would be severe, so everyone expected the Chinese government to step in and save it.
But the hole in its finances was so vast that even the Chinese government found it difficult to put out the fire.
Pether, which had been clinging to the 0.5 level by sheer force of will, fell to 0.00001. Anyone who had held on because they believed it would eventually re-peg, or who had bought in late, suffered losses of more than 99 percent.
The collapse of the world’s third-largest stablecoin sent a wave of panic selling through the entire market.
DeFi protocols that had grown to a scale of $100 billion were suddenly facing liquidation because of insufficient collateral, and that only accelerated the market’s slide.
Amid all that, several absurd incidents were also unfolding.
Sky Finance, based in Hong Kong. Terrius Network, based in Singapore.
These two companies were the world’s largest and second-largest providers of crypto-backed lending services.
But once cryptocurrencies crashed and bank runs began, both companies suspended redemptions and withdrawals in lockstep.
QuadricingTX, a Canadian cryptocurrency exchange.
Its founder and CEO, Gerard McBird, had always been active with investors, discussing the outlook for the crypto market with them through Dascord and posting about his daily life on Linstagram.
But after the Pether fiasco began, withdrawals started getting delayed. He only told people to wait, saying it was a security issue.
More than a week passed like that, and then the family suddenly announced his death.
They said he had contracted an endemic disease while on a business trip to India and died.
The problem was that Gerard McBird had always been obsessed with security. So obsessed, in fact, that he had managed the exchange’s assets entirely by himself.
In other words, only he possessed the crypto key that could access the exchange’s assets.
No matter how badly the market had crashed, the exchange still had $500 million worth of customer assets locked inside it.
And now there was no way to withdraw them.
Users who were about to lose their money demanded proof that CEO McBird was truly dead, but his wife claimed that his body had already been cremated and that she didn’t know the crypto key.
CoinPeople, a small exchange in the United Kingdom.
It shut down overnight, and the operator vanished.
Later investigations revealed that it had never been a real exchange to begin with.
Like a mock trading platform, buy and sell orders had been matched only on the ledger; numbers changed in customer accounts, but no actual coins were ever bought or sold.
So where had the coins and cash deposited by customers gone?
Obviously, the operator had long since stolen everything and run.
BitMining, a Korean mining company.
This company set up offices in Gangnam and bombarded subways and the internet with massive advertising campaigns.
It claimed to be mining cryptocurrency with facilities in Russia and Kazakhstan, and lured in members by promising that anyone who leased its mining rigs would earn huge profits.
With promises of 100 percent principal protection and 1.5 percent daily returns, or 45 percent a month, trillions of won in investment money poured in.
When the crypto crash began, frightened investors rushed to get their money out, only to find that the company had closed up shop and disappeared.
The fallout from the crypto crash spread everywhere.
MicroHouse, the listed company holding the most Vantcoin of any public firm, was pushed to the brink of bankruptcy. Other companies such as Lexon and Tisla, which held part of their assets in Vantcoin, also suffered losses worth tens or even hundreds of millions of dollars.
That was one thing for individual companies.
But there was even a country that had bet its entire national future on cryptocurrency.
El Salvador.
This Central American country of 6.5 million people had been suffering from severe inflation, and 70 percent of its population had no bank account.
To deal with that situation, the president made Vantcoin legal tender for the first time in the world and used a chunk of the nation’s scant foreign reserves to buy 3,000 Vantcoin for $150 million.
That worked out to roughly $50,000 per coin, and after the purchase, Vantcoin even rose to $80,000, making the move look like a brilliant investment.
The president was convinced that the rise in Vantcoin would solve the country’s debt problems.
Then the Pether crisis hit, and Vantcoin dropped to $60,000.
He told the startled public, “There’s no need to worry. Coins always go up.”
It fell to $40,000.
“Selling now would be stupid. This is actually a chance to buy more.”
It fell to $30,000.
“If you keep holding until the end, you’ll definitely win.”
It dropped to $20,000.
Vantcoin had plunged 80 percent from its peak, and with it, that much of the national treasury had vanished.
With the country unable to pay its debts and on the verge of declaring default, the president kept shouting for people to average down. The problem was that there was no money left to average down with.
Citizens who had trusted the government and held and traded Vantcoin all this time were hit with a thunderbolt, losing 70 percent of their assets.
Enraged, they took to the streets in anti-government protests demanding the president’s resignation.
The NFT market was wobbling too.
NFT stood for Non-Fungible Token, a virtual token used to prove ownership of digital assets.
In the digital world, data could be copied endlessly, and there was no difference between an original and a duplicate.
But thanks to blockchain technology, it became possible to create a unique original in that digital world and establish a way to prove it.
So everyone started making and issuing NFTs, then putting them up for sale.
Artists uploaded their paintings and works to sell as NFTs, while the NBA and MLB sold highlights from games as NFTs.
Even game companies jumped in, announcing that they would apply NFTs to characters and items.
Countless companies and projects sprang up around NFTs, and character illustrations generated randomly by algorithms were auctioned off for tens of millions of dollars.
When people said Hollywood celebrities and sports stars had bought ape characters riding yachts, prices soared without end.
The first-ever tweet NFT, “I just set my tweet,” posted by the founder of Twiitter, sold for an astonishing $2.9 million.
All the while, doubts kept surfacing.
“Scarcity is attractive. But what exactly do you use it for?”
“Someone who buys an NFT image says it’s unique. But no matter how I look at it, I can’t see how it’s any different from a copy.”
“If you’re buying it just for personal collection or satisfaction, fine. But 80 percent of NFT buyers are buying it so they can sell it later at a higher price. That’s because they believe there’s some fool out there who’ll pay even more than they did.”
NFTs were usually traded in Etherium.
So when Etherium rose, NFT prices rose with it. But when Etherium crashed, NFT prices crashed right along with it.
The person who had bought the first tweet for $2.9 million put it back up for auction, but the highest bid was only 1 Etherium, or about $1,000.
The moment Pether collapsed, screams broke out across the market, while cheers erupted at Continue Capital.
“Waaah!”
“Woooo!”
Everyone wore their joy openly, and a few even grabbed each other and jumped up and down.
I looked at them and laughed.
Sometimes another person’s misery is what makes your own happiness possible.
David spoke to me in a tired voice.
“You’ve worked hard.”
“You too, David.”
He looked completely worn down, probably from the tension and overwork.
I was likely in much the same shape.
After all, I’d spent days on edge checking the exchange around the clock, and I hadn’t slept properly for several nights.
There’s a reason they say long traders live long, but short sellers die young.
Maybe I’d finally get a good night’s sleep today.
David shook his head.
“I never thought the entire market would be this badly wrecked. Only the hedge funds that joined the attack are celebrating now.”
“Empty Pool Research must be cheering too.”
The hedge funds had been like fish dropped into water, tearing through coin after coin and stripping them bare.
The fact that the market had collapsed from an attack of this scale meant nothing less than how much bubble had been inflated in the crypto market all along.
Continue Capital had triggered this event.
But most of the blame had landed on Leonard Chang rather than on us. He had kept insisting that Pether’s reserves were more than sufficient.
Coinmax was still operating normally, but Leonard Chang had gone completely dark. Reporters went to his office in Hong Kong, only to find it empty.
“Now we just buy up the dirt-cheap Pether and put it back into the PN protocol to redeem it.”
“We may not even need to.”
Because everyone was unstaking and taking back 0.2 pennies.
Rather than accept worthless Pether and get 0.05 pennies back, taking 0.2 pennies was simply the better deal.
They had accepted $4.5 billion worth of Pether as deposits and returned $900 million of it, which meant they’d pocketed roughly $3.6 billion.
David said, newly amazed, “That’s an unbelievable return.”
“Honestly, I think so too.”
What had my monthly salary been back when I worked at the brokerage again?
Thanks to using the DeFi protocol, financing costs were almost nonexistent.
So this was why people called DeFi the future of finance.
Most of the institutions that had taken Penny immediately requested redemption, and the Penny converted back into dollars was burned.
I got a report on the situation in Korea from Senior Dongho.
“Things are insane here right now. On the Vantcoin channels, there are post after post from people certifying that they’ve lost their entire fortunes, and there are even protesters in front of the company building.”
“Shouldn’t they be taking that to Newcurrency?”
“That place is too far. Where the hell are the Cayman Islands? You know Changsu, right?”
“Who?”
“Park Changsu. The boastful one.”
“Ah, Senior Changsu? What about him?”
“He was famous for making a killing on coins, you know. He used to brag about buying some coin and making ten times his money, and after that he apparently even borrowed money to go all in on Titan. He said that if he succeeded, he’d buy a whole building, but now we can’t get in touch with him.”
“Ah……”
Of all things, he had gone and bought Titan.
“And he’s not the only one. There are plenty of people who borrowed money to invest in crypto.”
As everyone knew, Korea was a country with a burning passion for cryptocurrencies.
One in three adults had at least tried crypto investing. And a great many of them were young people.
In truth, there were reasons for that.
The persistently low interest rates and quantitative easing that had followed the financial crisis caused asset prices to soar.
By contrast, real wages barely rose, and jobs were unstable.
It was an age where you could work hard your whole life and still struggle to buy a house or get married. So people were inevitably driven into the investment market.
They couldn’t afford real estate, and as for stocks, as GL Chemical’s physical split-off and relisting of GL Entech had revealed, the executives were obsessed with skimming profit rather than raising share prices.
In the end, the only option left was cryptocurrency.
It was a market where anyone could potentially get rich overnight.
Even though it had effectively become a nationwide gambling table, there was still no real regulation.
“Regulations should have been put in place long ago.”
[Well, I can understand why the government feels the way it does too.]
The government had tried to regulate it several times, and at one point even considered shutting down the exchanges.
It was the so-called Kim Changgi Revolt. But every time, investors pushed back hard and the effort collapsed.
I thought back to my first life.
The Pether fiasco had actually broken out under the next administration.
At the time, the president was Im Changsik. Surprisingly, the moment he took office, he loosened even the few regulations that existed, saying crypto would be nurtured as a new industry.
So when the Pether crisis hit, hundreds of thousands of people suddenly became delinquent debtors, economic growth dropped by more than 1 percent, and the economy took a major shock.
[You know how Im Changsik and Namgoong Seok faced off in the Woori Kookmin Party primary over crypto regulation this time, right? Did you by any chance watch the debate?]
“I only skimmed the article.”
Dongho senior laughed.
[Look up the video later and watch it. It’s seriously amazing.]
***