Terraform Labs founder Do Kwon is being sentenced today in a US federal court in Manhattan. Prosecutors are seeking a twelve-year prison sentence for the 33-year-old South Korean, who pleaded guilty in August to misleading investors about the stability of his cryptocurrencies.
The collapse of the Terra-LUNA ecosystem in May 2022 wiped out more than 40 billion US dollars in market value. On 12 August 2025, Kwon pleaded guilty before the Manhattan Federal Court to conspiracy to commit fraud and wire fraud. The charges relate to the collapse of Terraform Labs, whose algorithmic stablecoin TerraUSD (UST) and sister cryptocurrency LUNA imploded within days in May 2022. Prosecutors emphasized that losses from the Terraform crash exceeded those of FTX, Celsius and OneCoin combined.
Update, 12 December 2025: Federal Judge Paul Engelmayer sentenced Do Kwon to 15 years in prison – three years more than prosecutors requested and ten years more than the defense sought. The judge described the prosecution’s recommendation as “unreasonably lenient” and the defense’s request as “entirely inconceivable and grossly unreasonable.” Engelmayer characterized the case as “fraud on an epic, generational scale” and stressed that “real people lost 40 billion dollars in real money, not some paper loss.” The judge estimated the number of victims at around one million. Kwon’s request to serve his sentence in South Korea was denied. After serving half of his US sentence, Kwon may apply for a transfer, before facing likely extradition to South Korea, where he could face up to 40 years in prison.
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Twelve years sought, five years requested
US prosecutors are arguing for a prison sentence of twelve years. They are taking into account Kwon’s guilty plea, the fact that he already spent 17 months in pre-trial detention in Montenegro, and the impending criminal proceedings in South Korea. The defense, by contrast, called for a maximum sentence of five years. In their plea, Kwon’s lawyers argued that his conduct did not stem from greed, but from hubris and desperation.
Federal Judge Paul Engelmayer raised critical questions regarding sentencing ahead of the verdict. He sought clarity on whether Kwon should receive credit for the 17 months spent in Montenegrin custody. The judge also addressed the likelihood of subsequent extradition to South Korea, where Kwon could face a prison term of up to 40 years. Under federal guidelines, a sentence of around 25 years would normally be recommended.
From vision to catastrophe
TerraUSD was designed as an algorithmic stablecoin intended to maintain its one-dollar peg through a mint-and-burn protocol. Users could at any time burn LUNA worth one dollar to mint one UST, or burn one UST to receive LUNA worth one dollar. This mechanism was meant to create arbitrage incentives: if UST fell below one dollar, traders were encouraged to burn UST and receive discounted LUNA. If UST rose above one dollar, they were supposed to burn LUNA and mint UST.
Unlike traditional stablecoins such as USDT or USDC, UST held no direct reserves in fiat currency or assets. Its value relied exclusively on the stability of the algorithm and the market value of LUNA. This circular structure proved to be a critical vulnerability. When, on 7 May 2022, two large addresses withdrew 375 million UST from the Anchor platform, UST lost its dollar peg. The mechanism tipped into a “death spiral”: users massively swapped UST for LUNA, causing the LUNA price to collapse and accelerating dilution even further.
Flight, arrest and extradition
After the collapse in May 2022, Kwon went into hiding. In March 2023, Montenegrin authorities arrested him at Podgorica airport as he attempted to fly to Dubai using a forged Costa Rican passport. Terraform CFO Han Chang-joon was also arrested during the same operation. A Montenegrin court sentenced both men in June 2023 to four months in prison for document forgery. Kwon’s appeal was rejected by the High Court in November 2023.
This was followed by a months-long legal battle between the United States and South Korea, both of which sought Kwon’s extradition. Although South Korea submitted its request earlier, Montenegro’s Justice Minister Bojan Božović decided in December 2024 in favor of the United States. On 31 December 2024, Kwon arrived in the United States. His extradition to South Korea after serving his US sentence is considered likely.
Civil consequences and investor losses
Parallel to the criminal proceedings, Kwon reached a settlement with the US Securities and Exchange Commission (SEC) in June 2024. A federal court approved a consent judgment totaling 4.5 billion dollars. Terraform Labs must pay 3.59 billion dollars in disgorgement, 467 million dollars in prejudgment interest, and 420 million dollars in civil penalties. Kwon himself is required to contribute at least 204 million dollars to the Terraform Labs bankruptcy estate, including 7 million dollars in cash as well as all crypto assets held by the Luna Foundation Guard.
A jury unanimously found Terraform Labs and Kwon liable in less than two hours in April 2024. The SEC will only receive payments once investors and creditors have been fully compensated. In addition, as part of his guilty plea, Kwon agreed to forfeit more than 19 million dollars.
Outlook on a prolonged legal process
Today’s sentencing marks only one stage in Kwon’s legal marathon. After serving half of his US prison sentence, he may apply for a transfer abroad. Prosecutors have indicated that they would not oppose such a request. In South Korea, far harsher penalties await him: prosecutors there are seeking up to 40 years in prison.
The issue of victim compensation remains complex. Analyses show that wealthy and experienced investors sold early and incurred significantly smaller losses. Less experienced investors, by contrast, sold later or even attempted to “buy the dip,” which dramatically increased their losses. Judge Engelmayer demanded clarity ahead of sentencing on how victim compensation would function in the event of a likely extradition to South Korea
