Guilty Plea and Sentencing Range
Terraform Labs co-founder Do Kwon seeks a five-year prison sentence after admitting to fraud tied to the $40 billion collapse of TerraUSD and LUNA. He pleaded guilty to conspiracy and wire-fraud charges in August 2025 and acknowledged that he misled investors about TerraUSD’s promised $1 stability under the “Terra Protocol.”
Prosecutors say he secretly arranged large purchases of UST to support its price and created the appearance of a functioning system. His request now raises a central question: Can a five-year term reflect the scale of losses tied to one of crypto’s largest failures?
Kwon accepted responsibility for misleading investors about TerraUSD’s stability. He stated that UST would keep its $1 value under an algorithmic model. Prosecutors said that claim was inaccurate and that Kwon used a trading firm to buy UST in large amounts during the 2021 de-pegging event.
Prosecutors argue that these undisclosed actions boosted confidence in Terraform products. They said investors continued buying TerraUSD and LUNA because they believed the system had regained stability. Furthermore, the prosecutors said this false assurance helped raise LUNA’s value to $50 billion by early 2022.
Under U.S. law, the charges carry a maximum sentence of 25 years. Prosecutors told the court they would consider recommending up to 12 years if Kwon fully accepts responsibility under the plea deal. Kwon, however, asks for five years. He frames this request as appropriate despite the larger sentencing range.
Collapse and Market Impact
TerraUSD and LUNA fell in May 2022. UST lost its peg, and LUNA collapsed shortly afterward. Tens of billions in market value disappeared within days. Retail and institutional investors suffered steep losses across global markets.
Prosecutors say Kwon’s earlier statements in May 2021 about the Terra Protocol restoring UST’s value were misleading. They said he used a high-frequency trading firm that quietly bought millions of dollars in UST to stabilize the token. They add that this activity created the illusion of a system functioning as advertised.
The crash grew into a major event across digital-asset markets. It erased trust in similar algorithmic stablecoin designs. Investors continued to raise concerns after regulators started examining the project.
Civil Penalties and Ongoing Debate
In 2024, Kwon and Terraform Labs settled a civil case with the U.S. Securities and Exchange Commission. They agreed to pay more than $4.5 billion. Kwon also paid an $80 million civil fine and accepted a complete ban on future crypto-related activities.
Critics argue that a five-year sentence does not match the scale of losses. They say the collapse destroyed about $40 billion in value almost instantly. They believe a tougher sentence better aligns with the broader market impact.
Supporters of a shorter term point to his guilty plea and asset forfeitures. They mention the SEC settlement as additional accountability. They say these steps show cooperation, which may influence sentencing.
Kwon will appear before U.S. District Judge Paul Engelmayer on December 11, 2025. The judge will consider the losses, the guilty plea, forfeitures, prior detention, and the plea-deal framework. The court’s decision may shape future cases involving large-scale crypto fraud.