Do Kwon Pleads Guilty to Fraud in $40B Terra Collapse

August 12, 2025 – Do Kwon, co-founder of Terraform Labs, has pleaded guilty to two federal charges in connection with the 2022 collapse of TerraUSD (UST) and Luna, a disaster that erased over $40 billion in market value and shook the crypto industry.

Appearing in a New York federal courtroom, Kwon admitted to one count of wire fraud and one count of conspiracy to commit wire fraud, charges that carry a potential sentence of up to 25 years. Judge Paul Engelmayer accepted the plea, with sentencing to be scheduled later.

How TerraUSD and Luna Unraveled

Terraform Labs’ algorithmic stablecoin UST was meant to maintain a $1 peg through an arbitrage mechanism involving its sister token Luna. But in May 2022, the system failed, triggering a “death spiral” that caused both tokens to collapse.

Prosecutors accused Kwon of misleading investors about the stability of UST and secretly working with trading firms to prop up the peg. Court documents also revealed internal messages showing deliberate deception.

From Montenegro Arrest to U.S. Courtroom

Following the collapse, Kwon fled South Korea and was arrested in Montenegro in March 2023 on an Interpol red notice while trying to leave with a forged passport. A year-long extradition battle followed, with Montenegro eventually sending him to the United States in late 2024.

The guilty plea avoids what would have been a lengthy and high-profile trial, potentially exposing further details about Terraform’s operations.

Ripple Effects on the Crypto Industry

The Terra collapse contributed to the bankruptcies of major firms, including Three Arrows Capital, and deepened the 2022 crypto winter. It also reignited debates on stablecoin regulation, with critics pointing to UST as an example of the dangers of unregulated DeFi projects.

Kwon had previously settled with the SEC in 2024 for $4.55 billion, including an $80 million personal fine and a ban from participating in future crypto transactions.

What’s Next for Do Kwon

Legal analysts expect a sentence between 10 to 15 years given the non-violent nature of the charges and the possibility of cooperation, though the maximum is 20 years per count. Questions remain about whether investors will ever see restitution.

For many in the industry, Kwon’s downfall is a cautionary tale — a reminder that even in the fast-paced world of crypto, hype without substance can end in collapse.

Did You Know?

The $40 billion wiped out in the Terra collapse was larger than the annual GDP of Iceland, showing just how massive the disaster was in scale.