Do Kwon, co-founder of Terraform Labs and creator of the TerraUSD and Luna cryptocurrencies, has been sentenced to 15 years in prison for fraud that led to the collapse of his projects in 2022, causing losses estimated at $40 billion.
Background of the case
Do Kwon, a South Korean citizen, founded Terraform Labs in Singapore, where he developed TerraUSD (UST), a stablecoin designed to maintain a value of 1 US dollar even amid high market volatility. Alongside it existed the Luna cryptocurrency, which was meant to support UST’s stabilization mechanism. The system relied on an algorithm that automatically adjusted the supply of tokens to maintain the peg to the dollar.
In May 2022, a catastrophic collapse occurred. TerraUSD lost its peg to the dollar, causing Luna’s value to plummet. Investors lost billions of dollars, and the collapse of Terraform Labs triggered a broader crisis in the cryptocurrency market, affecting other projects and exchanges. Prosecutors charged Kwon with misleading investors in 2021, when UST had already lost its peg once. Kwon publicly claimed that the „Terra Protocol” algorithm had restored stability on its own, while in reality he had secretly arranged for a high-frequency trading firm to buy tokens in order to artificially boost the price.
Trial and sentencing
Kwon was arrested in Montenegro in 2023 and then extradited to the United States. In January 2025, he was charged with nine counts, including securities fraud, wire fraud, commodities fraud, and conspiracy to commit money laundering. In August, Kwon pleaded guilty to two charges: conspiracy to commit fraud and wire fraud. During a hearing at the federal court in Manhattan, he apologized to the victims, stating: „What I did was wrong”.
The sentence was handed down on December 11, 2025, by Judge Paul A. Engelmayer. The judge described Kwon’s actions as „fraud on an epic, generational scale,” stressing that few federal fraud cases have caused as much damage. Engelmayer criticized Kwon for lying to investors who had entrusted him with their life savings. Prosecutors had sought at least 12 years in prison, citing the enormous losses and the cascading effect on the market. The defense had requested no more than 5 years, arguing that Kwon should return to South Korea to face further trials.
During the sentencing, Kwon, dressed in a yellow prison uniform, read a statement in which he expressed remorse after reading letters from hundreds of victims. One of them lost between $400,000 and $500,000, which destroyed her savings and plans for the future. Kwon’s lawyer, Sean Hecker, emphasized his client’s genuine remorse and efforts to make amends.
Consequences and future
As part of a 2024 settlement with the Securities and Exchange Commission (SEC), Kwon agreed to pay $80 million in civil penalties, admit to misleading investors, and accept a lifetime ban on cryptocurrency transactions. The entire settlement amounts to $4.55 billion.
Under the agreement, after serving half of his sentence in the US, Kwon may be transferred abroad. He faces separate charges in South Korea, where an investigation into the collapse of Terraform Labs is also underway. US Attorney General Jay Clayton described Kwon’s schemes as „complex machinations” designed to artificially inflate the value of cryptocurrencies and to evade accountability.
The Do Kwon case has become a symbol of the risks associated with the cryptocurrency market and has highlighted the need for greater regulation. The collapse of TerraUSD not only ruined thousands of investors but also contributed to a broader loss of confidence in stablecoins and the entire digital asset sector.
Source: NBC NEWS
