For a time, Do Kwon was hailed as a visionary, a “cryptocurrency king” building a decentralized financial utopia. His company, Terraform Labs, and its associated cryptocurrencies, TerraUSD (UST) and LUNA, grew to a combined market capitalization of over $40 billion. The project promised investors stability and high returns, attracting a legion of devoted followers who called themselves “LUNAtics.” Yet, as the world learned, this crypto kingdom was built on a foundation of deception. The dramatic collapse of the Terra ecosystem in May 2022 sent shockwaves through the entire crypto market, wiping out billions in investor wealth. The subsequent global manhunt for Kwon, his arrest, and a protracted legal battle have now culminated in a stunning turn of events: a guilty plea in a U.S. federal courtroom on August 12, 2025.
The Rise: Building a Crypto Empire
Do Kwon, born in Seoul in 1991, studied computer science at Stanford University and, reportedly, worked briefly at Apple and Microsoft. In 2018, he co-founded Terraform Labs with Daniel Shin, aiming to revolutionize decentralized finance (DeFi) through a suite of blockchain-based products. Their most ambitious creation was the Terra blockchain, which featured two key tokens: LUNA and TerraUSD (UST), an algorithmic stablecoin designed to maintain a 1:1 peg with the U.S. dollar.
Traditional stablecoins are backed by fiat reserves, such as the U.S. dollar. UST was an algorithmic stablecoin, whose stability was maintained by an intricate relationship with its sister token, LUNA. The concept was that when the value of UST dipped below $1, arbitrageurs would be incentivized to swap UST for LUNA, which would be burned, thus reducing the supply of UST and pushing its price back up. When UST’s value rose above $1, the process would be reversed. This seemingly elegant mechanism, combined with the incredibly high interest rates offered by the Anchor Protocol—a lending and borrowing platform within the ecosystem—drew in tens of billions of dollars from both institutional and retail investors. Kwon’s public persona, marked by a defiant, confident, and sometimes confrontational attitude, only added to the project’s allure. By early 2022, the combined market cap of UST and Luna exceeded $50 billion.
The Fall: Collapse of TerraUSD and Luna
The promise of stability, however, was an illusion. The fundamental flaw in the algorithmic stablecoin model became devastatingly apparent in May 2022. Initial signs of trouble emerged as Anchor Protocol reduced its interest rates, prompting massive withdrawals. Two large traders converted over $185 million UST into other stablecoins, triggering a liquidity crisis. By May 8, 2022, UST lost its $1 peg. The self-correcting mechanism, rather than working as intended, triggered a catastrophic “death spiral.” As the value of UST plummeted, the algorithm began to mint LUNA tokens at an exponential rate to try and re-establish the peg. This led to a hyperinflation of LUNA, and, within days, its value crashed to near zero. The collapse wiped out an estimated $40 billion in market value almost overnight, triggering a broader contagion event that destabilized the entire cryptocurrency market. In South Korea alone, an estimated 280,000 people suffered losses. Kwon’s infamous May 9, 2022, tweet, “Deploying more capital — steady lads,” became a meme of hubris and denial amid systemic failure.
As legal proceedings would later reveal, Kwon’s deceptions began well before the 2022 crash. According to a Department of Justice press release, Kwon and Terraform had secretly manipulated the system to create the illusion of a functioning and decentralized financial world. For instance, after UST first struggled to maintain its peg in May 2021, Kwon allegedly reached a secret agreement with a high-frequency trading firm to purchase large amounts of UST to artificially prop up its value, a fact he hid from investors. He also allegedly made misrepresentations about a number of Terraform’s other products, including the Chai payment app, to create the impression of “real world” usage.
By September 2022, South Korean courts issued an arrest warrant. An Interpol red notice followed, while Kwon—on the run—posted photos claiming he was coding in his living room. In February 2023, the U.S. Securities and Exchange Commission (SEC) charged Do Kwon and Terraform Labs with securities fraud. The SEC contended that Terraform and Kwon failed to provide the public with full, fair, and truthful disclosure as required for a host of crypto asset securities, most notably for LUNA and Terra USD, and committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors. The SEC Complaint may be found here.
Kwon was eventually arrested in Montenegro in March 2023 while attempting to travel with falsified document. After months of legal wrangling, he was extradited to the United States on December 31, 2024.
The Guilty Plea
Kwon initially appeared before a U.S. magistrate on January 2, 2025, and pleaded not guilty to a nine-count indictment that included charges of securities fraud, wire fraud, commodities fraud, and money laundering conspiracy. The indictment may be found here.
But all changed when Kwon appeared in a federal courthouse in New York on August 12, 2025, clad in yellow prison jumpsuit. He pled guilty to one count of conspiring to commit commodities fraud, securities fraud, and wire fraud; and one count of committing wire fraud. As part of his plea, Kwon agreed to forfeit over $19 million in proceeds from his illegal schemes, including his interest in Terraform and its cryptocurrencies. In court, Kwon admitted to making false and misleading statements about UST’s stability and failing to disclose the role of a trading firm in artificially restoring its peg. “What I did was wrong,” he said, acknowledging the deception that led to billions in losses.
In exchange for Kwon’s plea, federal prosecutors agreed to not seek a prison sentence of more than 12 years and dropped seven other counts against him. However, Judge Paul Engelmayer maintained that he was entitled to prescribe a longer sentence, which could be up to 25 years. Judge Engelmayer is scheduled to sentence Kwon on December 11, 2025.
The Southern District of New York courthouse in which Kwon pleaded guilty is the same courthouse in which, in April 2024, in the SEC’s civil lawsuit, a jury found Kwon guilty of securities fraud. He then reached a settlement under which he agreed to pay $110 million in disgorgement, $14.3 million in prejudgment interest and an $80 million civil penalty.
Do Kwon’s journey from Stanford-educated software engineer to convicted fraudster is a cautionary tale for the crypto industry. His vision for a decentralized financial ecosystem captivated investors and reshaped the market, but it was built on a foundation of deception and flawed design. As Kwon awaits sentencing, the crypto world continues to grapple with the fallout—and the lessons—of one of its most dramatic implosions. The UST episode serves as a stark reminder to investors that the risks in the digital asset market are real and that a healthy dose of skepticism is always warranted, no matter how promising a project may seem.
