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Terraform Labs co-founder Do Kwon faces sentencing in Manhattan on Thursday for fraud tied to the 2022 collapse of the TerraUSD and Luna cryptocurrencies, which lost an estimated $40 billion in market value. Prosecutors asked the court to impose a 12-year prison term, while his legal team urged a sentence of no more than five years.
US prosecutors say Kwon misled investors about the stability of TerraUSD, which Terraform Labs promoted as a “stablecoin” designed to hold a $1 value. When the token slipped below that level in 2021, Kwon told backers that an algorithm would restore the peg, but investigators say a trading firm quietly bought large amounts of TerraUSD to prop up the price.
Do Kwon pleaded guilty in August to conspiracy to commit commodities fraud, securities fraud, and wire fraud, as well as one count of wire fraud. He admitted in court that he gave investors an inaccurate explanation of how TerraUSD regained its peg and failed to disclose the trading firm’s role.
Federal guidelines point toward a sentence of about 25 years. However, prosecutors recommended 12 years, citing his guilty plea, his expected prosecution in South Korea, and time already served in Montenegro during extradition proceedings. They described the fraud as “colossal” and said the collapse helped trigger a cascade of failures across the crypto sector.
Kwon’s lawyers urged the judge to impose a sentence capped at five years so he can return to South Korea to face separate charges. They argued his conduct reflected overconfidence and desperation during a period of extreme market stress, rather than personal greed.
In a letter to the court, Kwon accepted responsibility for the losses and acknowledged that the community trusted his guidance. He wrote that his misstatements came from “hubris” and said he regrets the harm to investors worldwide.
As part of his US plea deal, Kwon agreed to forfeit more than $19 million in proceeds and certain properties. Separately, Terraform Labs and Kwon reached a civil settlement with the US Securities and Exchange Commission in 2024 worth more than $4.4 billion, including an $80 million civil penalty against him and a ban on crypto-related activity.
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Terraform Labs launched TerraUSD as an “algorithmic stablecoin” that relied on trading incentives with its sister token Luna, rather than traditional reserves like US Treasuries. When the design failed during market turmoil in May 2022, TerraUSD lost its peg, and Luna collapsed to near zero, wiping out billions for retail and institutional investors.
Authorities say the failure amplified stress across digital asset markets and contributed to later problems at firms such as FTX and Celsius. US courts have since handed down 25-year sentences to FTX founder Sam Bankman-Fried and 12-year sentences to Celsius founder Alex Mashinsky. At the same time, former Binance chief Changpeng Zhao received a four-month sentence for compliance failures.
Kwon’s case now stands as one of the most closely watched criminal proceedings from the 2022 crypto downturn. Judge Paul Engelmayer’s decision will signal how US courts view large-scale crypto fraud and the responsibilities of founders of complex digital asset ecosystems.
