NEW YORK — Do Kwon, the South Korean co-founder of Terraform Labs, has pleaded guilty in one of the largest cryptocurrency fraud cases in history. Appearing before U.S. District Judge Paul A. Engelmayer in Manhattan federal court on August 12, 2025, Kwon admitted to two counts of conspiracy and wire fraud tied to the $40 billion collapse of TerraUSD (UST) and its sister token Luna in 2022.
The 33-year-old entrepreneur, once celebrated as a blockchain visionary, now faces a maximum sentence of 25 years in prison. However, under a plea agreement, prosecutors are expected to seek no more than 12 years when he is sentenced on December 11, 2025.
The Rise and Fall of TerraUSD
Founded in 2018, Terraform Labs sought to revolutionize finance through blockchain-based solutions. Its flagship product, TerraUSD, was marketed as an “algorithmic stablecoin” — a digital asset pegged to the U.S. dollar without relying on cash or government bonds. Instead, it maintained its value through an algorithm tied to its sister cryptocurrency, Luna.
Anchor Protocol, an associated platform offering 20% annual yields on UST deposits, drew billions of dollars in investment. By early 2022, Luna’s price soared above $119, and together with UST, the ecosystem’s market value topped $50 billion.
But in May 2022, TerraUSD lost its $1 peg, triggering panic. Luna’s price collapsed from $80 to near zero, and UST plummeted to just $0.30. The crash erased about $40 billion in market value and sent shockwaves through the cryptocurrency sector, contributing to the failures of other high-profile companies, including FTX.
Allegations of Deception
Prosecutors say Kwon knew UST’s stability was fragile. They pointed to an incident in May 2021, when UST briefly broke its peg. Publicly, Kwon claimed the Terra protocol had worked as designed, but behind the scenes, he had arranged for a trading firm to secretly buy UST to restore its value.
This deception, prosecutors argued, misled investors and artificially inflated Luna’s price. By hiding the system’s flaws, Kwon allegedly prolonged the illusion of stability, attracting even more money into a product doomed to collapse.
The Hunt for Do Kwon
After Terra’s implosion, South Korea issued an arrest warrant in September 2022. Interpol added him to its Red Notice list, but his whereabouts remained unknown until March 2023, when he was arrested at Podgorica Airport in Montenegro. Authorities say he attempted to fly to Dubai using falsified documents.
Convicted of passport fraud in Montenegro, Kwon served a brief sentence before a protracted extradition battle began. Both South Korea and the United States sought custody, but in December 2024, Montenegro’s justice minister approved extradition to the U.S.
Kwon arrived in New York later that month, facing a nine-count indictment for securities fraud, wire fraud, commodities fraud, and conspiracy to launder money.
Devastating Impact on Investors
The Terra collapse left thousands of retail and institutional investors with devastating losses. Many were drawn in by Kwon’s confident social media presence and promises of a revolutionary, stable digital currency.
Stories emerged of individuals losing life savings — including a single mother who lost $200,000 and retirees who saw their pensions vanish. Hedge funds, venture capital firms, and trading platforms also absorbed significant financial damage.
For some victims, Kwon’s guilty plea brought a sense of closure. “Finally, some accountability,” one wrote online. Others expressed bitterness, arguing that no sentence could undo the harm: “Too late for those of us who lost everything.”
The Plea Deal
Kwon initially pleaded not guilty in January 2025. The change in plea this August reportedly came in exchange for a reduced sentence and a $19 million forfeiture. He has also agreed to assist investigators, which could reveal new information about Terraform Labs’ internal operations.
In June 2024, Kwon and Terraform reached a civil settlement with the U.S. Securities and Exchange Commission (SEC), agreeing to pay $4.47 billion. Kwon personally faced a $204 million penalty. Terraform Labs later filed for bankruptcy in January 2025, complicating restitution efforts for victims.
Broader Implications for Crypto Regulation
Kwon’s downfall has become a cautionary tale for the cryptocurrency industry. The Terra disaster highlighted the risks of experimental financial products and the lack of investor protections in the decentralized finance (DeFi) space.
U.S. regulators have since increased scrutiny of stablecoins, with SEC Chair Gary Gensler warning that “failure to comply with the law leaves ordinary investors exposed.” Internationally, regulators are calling for stricter oversight to prevent similar collapses.
The case has drawn comparisons to other major crypto scandals, including Sam Bankman-Fried of FTX, sentenced to 25 years, and Alex Mashinsky of Celsius Network, who pleaded guilty in December 2024. Together, these cases mark a turning point in the legal landscape for digital asset companies.
Waiting for Sentencing
As Kwon awaits sentencing, he remains in federal custody. His journey from celebrated tech innovator to convicted fraudster underscores the volatility of the crypto industry and the personal risks of unchecked ambition.
For many in the blockchain world, the outcome of his case will serve as a benchmark for accountability in an industry still fighting for legitimacy. For his victims, it is a reminder that in the pursuit of high returns, the cost can be everything.
