To Kwon, co-founder of Terraform Labs and creator of TerraUSD cryptocurrency and Luna, he was sentenced to 15 years imprisonment for fraud that led to the collapse of his designs in 2022, causing losses estimated at $40 billion.
Background
To Kwon, a South Korean citizen, founded Terraform Labs in Singapore, where he developed TerraUSD (UST) – a stablecoin designed to maintain the U.S. dollar value even in high market volatility conditions. Along with it, there was a cryptocurrency of Luna that was to support the UST stabilisation mechanism. This system was based on an algorithm that automatically regulated the supply of tokens to maintain a dollar connection.
In May 2022 there was a catastrophic breakdown. TerraUSD lost its connection to the dollar, resulting in an avalanche decline in Luna's value. Investors lost billions of dollars, and the collapse of Terraform Labs triggered a wider crisis in the cryptocurrency market, affecting other projects and stock exchanges. Prosecutors accused Kwon of misleading investors in 2021, when UST had already once lost its connection – Kwon publicly claimed that the algorithm "Terra Protocol" had restored stability itself, while in fact secretly commissioned a company trading high frequency to purchase tokens to artificially conquer the price.
Procedure and judgment
Kwon was arrested in Montenegro in 2023 and subsequently released during extradition to the United States. In January 2025, nine charges were filed against him, including securities fraud, telegraphic fraud, commodity fraud and a conspiracy to launder money. In August, Kwon pleaded guilty in two charges: a conspiracy to cheat and telegraph fraud. During the Manhattan federal court hearing, he apologized to the victims, stating, "What I did was wrong."
The sentence came before Judge Paul A. Engelmayer on December 11, 2025. The judge described Kwon's actions as "a fraud on an epic, generational scale", stressing that in the history of federal charges few frauds caused so much damage. Engelmayer criticized Kwon for lying to investors who entrusted him with life savings. Prosecutors demanded at least 12 years in prison, given the enormous losses and the cascade effect on the market. The defense requested a maximum of 5 years, arguing that Kwon should return to South Korea for further trials.
During the operative part of Kwon, dressed in a yellow prison outfit, he read a statement in which he expressed regret after reading letters from hundreds of victims. One of them lost $400-500 000, which destroyed her savings and plans for the future. Kwon's attorney, Sean Hecker, emphasized the genuine repentance of the client and efforts to make amends.
Consequences and the Future
As part of a settlement with the SEC of 2024, Kwon agreed to pay $80 million in civil punishment, admit to misleading investors and submit to a lifetime ban on cryptocurrency transactions. The whole deal is $4.55 billion.
According to the agreement, after having served half the sentence in the US, Kwon may be transferred abroad. He is facing separate charges in South Korea, where there is also an investigation into the collapse of Terraform Labs. U.S. Attorney-General, Jay Clayton, described Kwon's schematics as "complicated machinations" aimed at artificially inflating cryptocurrency values and escaping responsibility.
The Do Kwon case has become a symbol of the risk associated with the cryptocurrency market and stressed the need for more regulation. The fall of TerraUSD not only ruined thousands of investors, but also contributed to a wider decline in confidence in stablecoins and the entire digital asset sector.
Source: NBC NEWS
