Important points:
- U.S. prosecutors are asking a New York judge to sentence Terraform Labs founder Do Kwon to: 12 years imprisonment Charged with orchestrating a multi-year virtual currency fraud.
- The collapse of TerraUSD (UST) and LUNA disappeared Over $40 billion Its value increased, sparking the “crypto winter” of 2022.
- Prosecutors argue that Kwon’s lies about decentralization, stability, and real-world adoption put him in a better position than Sam Bankman Freed and other major cryptocurrency fraudsters.
U.S. authorities are seeking one of the harshest sentences yet in a cryptocurrency fraud case, alleging that Terraform Labs founder Do Kwon built an empire on calculated deception and set off a chain reaction that shook the entire digital asset market. his sentencing is scheduled December 11, 2025in Manhattan federal court.
Below is a breakdown of what prosecutors say, why they say 12 years is justified, and what it means for cryptocurrencies.
US prosecutor calls Terraform collapse a ‘$40 billion lesson’ for cryptocurrencies
in detailed filing Writing before Judge Paul A. Engelmayer in the Southern District of New York, U.S. prosecutors described Do Kwon as the mastermind behind a “deliberate fraud” that drove Terraform Labs’ rapid rise and brutal collapse.
between 2018 and 2022Mr. Kwon sold Terraform’s products, including algorithmic stablecoins. Terra USD (UST) and the LUNA token as a cutting-edge decentralized financial tool that is transparent, resilient, and controlled by code and community.
According to the government, the reality was the opposite.
- Depends on the key mechanisms supporting the UST $1 peg Secret trading support Rather than an “independent algorithm”.
- Entities and protocols that were thought to be independent are actually Directly managed by Mr. Kwon.
- Adoption metrics and “actual usage” numbers are inflated or fabricated To attract investors and maintain the hype.
At its peak in spring 2022, the market value of the Terraform ecosystem will be Over $50 billion. Once the UST is unpegged and the ecosystem is unraveled; $40 billion in value has disappearedretail and institutional investors bear most of the losses.
Prosecutors claim these losses exceed the damage This is a combination of Sam Bankman Fried’s FTX, Celsius’ Alexander Mashinski, and OneCoin’s Karl Sebastian Greenwood, making Terraform one of the most catastrophic failures in crypto history.
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Prosecutors allege how the fraud took place
“Stablecoins” that were never truly stable
A central pillar of this case is how UST was marketed and how it performed in practice.
Mr. Kwon argued that terra protocol We can keep UST fixed at $1 through algorithmic incentives and market dynamics, without the need for central support. However, according to court documents, when UST lost its pegged May 2021the system did not recover on its own.
Instead, Kwon Secret agreements with high frequency trading companies Buy a lot of UST and force the price back to $1. This rebound was publicly displayed as proof that the algorithm and design worked as promised. Privately, this was a bailout that investors had no idea about.
Prosecutors argue that this private intervention was not trivial. core risk of the product. Buyers were led to believe that they were relying on a robust and autonomous mechanism, when in reality the peg relied on hidden market support.
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Misleading governance, false decentralization and inflated introductions
Authorities also allege that Kwon repeatedly misrepresented how “decentralized” and “independent” Terraform’s ecosystem actually was.
Luna Foundation Security Guard: Not very independent.
In early 2022, Kwon Luna Foundation Guard (LFG)a reserve fund that was supposed to use billions of dollars worth of assets, including Bitcoin, to defend the UST peg. The publicity campaign focused on the fact that LFG was regulated by an autonomous governing body of industry experts, but in reality this was not the case, prosecutors said.
- Kwon Effectively control both Terraform and LFG.
- He circumvented or overrode the supposed governance structure to make important financial decisions.
- Hundreds of millions of dollars in LFG assets exploitedRather than just being used to protect the UST as advertised.
Another aspect of the case that came to light is how Mr. Kwon promised to deceive investors regarding Terra-based applications.
- mirror protocol: It is promoted as a decentralized exchange that trades synthetic assets that reflect US stocks. Prosecutors say Terraform used trading bots to control prices behind the scenes and exaggerated user statistics to make it appear as if adoption was organic.
