Do Kwon, the founder behind the collapsed Terra cryptocurrency project, finally pleaded guilty on Tuesday to fraud charges that wiped out billions of dollars from investors. Kwon admitted he knowingly deceived buyers about his company’s flagship products between 2018 and 2022.
Do Kwon, hailing from South Korea, founded Terra, a crypto ecosystem that promised huge returns through its LUNA token and TerraUSD stablecoin. Authorities say he ran a fraudulent scheme that made him rich but devastated investors when the project collapsed in 2022.
Kwon reverses plea, admits to fraud
Kwon changed his plea after initially fighting nine criminal charges, including securities fraud, wire fraud, and money laundering conspiracy. He now admits guilt to two key charges: conspiracy to defraud and wire fraud.
“I knowingly agreed to participate in a scheme to defraud purchasers of cryptocurrencies from my company, Terraform Labs,” Kwon told the judge. “I made false statements about how the peg was restored and the role of another firm. I knew my statements were false,” he added.
As part of the plea agreement, Kwon will pay $19 million in penalties. Although the charges carry a maximum sentence of 25 years, prosecutors have agreed to recommend no more than 12 years.
The collapse of an empire that erased $40 billion in value
Terra’s ecosystem centered on two main products: the LUNA token and TerraUSD (UST), an algorithmic stablecoin. The project attracted investors seeking entry into decentralized finance (DeFi) and promised substantial returns.
Terra’s collapse began when UST lost its $1 peg in May 2022 due to massive Anchor withdrawals and selling pressure. The algorithmic mechanism minted billions of LUNA to restore the peg, hyperinflating LUNA and crashing its value to near zero. Investors lost more than $ 40 billion as the ecosystem imploded, sparking a crypto contagion.
Terra’s failure in May 2022 destabilized the crypto market. Major firms with exposure to Terra, such as hedge fund Three Arrows Capital (3AC), faced massive losses, contributing to a chain reaction. Lending platforms BlockFi and Genesis, impacted by 3AC’s default and later FTX’s collapse, filed for bankruptcy in November 2022 and January 2023, respectively. Terra’s failure also indirectly weakened market confidence, setting the stage for FTX’s downfall in November 2022 due to its own mismanagement and liquidity issues.
Bitcoin, which peaked at approximately $69,000 in November 2021, fell nearly 78% to below $16,000 by November 2022, driven by Terra’s collapse and subsequent market turmoil. Most major cryptocurrencies have since recovered significantly, with Bitcoin reaching a new high above $103,000 in early 2025.
Authorities in the U.S. and South Korea filed criminal charges against Terraform Labs’ founder, Do Kwon, alleging he operated a fraudulent scheme that misled investors about Terra’s stability to enrich himself. Kwon faces charges including securities fraud and conspiracy in the U.S., with South Korea also seeking his extradition for fraud-related charges.
Kwon now sits in a US jail, facing eight serious criminal charges, including securities fraud, wire fraud, and conspiracy. He had initially pleaded not guilty to all charges, but prosecutors had strong evidence against him.
