Cryptocurrency magnate Do Kwon acknowledges culpability regarding the collapsed unstablecoin, leading to a $41 billion loss
In a significant turn of events, Terraform Labs founder Do Kwon has pleaded guilty to conspiracy to commit fraud and wire fraud in August 2025. The plea was in relation to the collapse of TerraUSD (UST), an algorithmic stablecoin, and the associated Terra/Luna crypto ecosystem, which resulted in estimated losses of $40-$60 billion in market value.
The guilty plea comes after years of investigation into Terraform Labs and the collapse of TerraUSD and Luna tokens. Kwon admitted that he "knowingly engaged in a scheme to defraud" purchasers of the stablecoin, and was part of a complex fraud involving staking multiple tokens as part of an algorithmic stablecoin framework.
The scheme aimed to mislead investors about the stability and value of TerraUSD, a stablecoin designed to maintain a $1 peg but which dramatically collapsed in 2022. The crash erased tens of billions of dollars in value from the crypto market. Under the original indictment, Kwon faced multiple charges including securities fraud, commodities fraud, and money laundering conspiracy, with possible sentences up to 135 years. However, his plea deal reduces the maximum to 25 years and includes forfeiture of up to $19 million.
The case highlights one of the largest fraud schemes in the cryptocurrency sector, involving complex financial engineering with algorithmic stablecoins, which lacked sufficient collateral backing and depended on market mechanisms to maintain price stability but ultimately failed, leading to massive investor losses.
Do Kwon, a South Korean citizen, found himself in federal court in the USA but initially denied the charges against him. He later holed up in Montenegro where he ran into trouble for travelling on a fake passport. His sentencing is scheduled for December.
The development in Kwon's case follows another major collapse in the crypto world, that of former FTX boss Sam Bankman-Fried's elaborate attempts to remake the financial system. However, no new information about a potential shared cell between the two has been provided.
Meanwhile, the concept of programmable or 'purpose-bound' money, which TerraUSD attempted to embody, is coming, probably as a feature in central bank digital currencies. The concept of tokenized assets stored on blockchains is now generally accepted in financial services circles.
[1] The New York Times
[2] The Wall Street Journal
[3] Bloomberg
[4] CoinDesk
[5] Reuters
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