Cryptocurrency entrepreneur Do Kwon acknowledges wrongdoing concerning the collapse of his unstable coin, resulting in a $41 billion loss
In a landmark decision, Do Kwon, co-founder of Terraform Labs and the Terra blockchain, has pleaded guilty to conspiracy to commit fraud and one count of fraud related to the collapse of TerraUSD (UST), an algorithmic stablecoin, and its associated LUNA token. This fraud led to losses totaling approximately $50 billion, one of the largest in cryptocurrency history, severely impacting thousands of investors globally.
The guilty plea, made on August 12, 2025, comes after Kwon was initially indicted on nine counts including securities fraud and money laundering conspiracy. Following his arrest in Montenegro in 2023 for using a fake passport, he was extradited to the U.S.
The Terra blockchain supported UST, a stablecoin that aimed to maintain a 1:1 peg to the US dollar through a complex mechanism involving the LUNA governance token. However, the system collapsed in May 2022, triggering a "death spiral," and damaging the broader crypto market. Terra's ecosystem also included high-yield products like the Anchor protocol, which promised unsustainably high interest rates (~19%), attracting significant deposits in UST before the crash.
Kwon agreed to forfeit $19 million and his interest in Terraform Labs and its crypto assets as part of the plea. He faces up to 25 years in prison, with sentencing scheduled for December 11, 2025.
This case is seen as a major milestone for U.S. regulators aiming to enforce accountability and integrity in digital asset markets. U.S. Attorney Jay Clayton, formerly SEC Chair, highlighted the plea as an example of bringing consequence to deceptive practices in cryptocurrency. The conviction and ongoing regulatory responses highlight increasing scrutiny on algorithmic stablecoins and may lead to stricter regulation of crypto projects to protect investors and market stability.
Terraform Labs was based in Singapore, and Kwon is a South Korean citizen. No information about a potential shared cell between Kwon and Sam Bankman-Fried, another crypto-related individual involved in fraud, was provided in the article. The concept of tokenized assets stored on blockchains is now generally accepted in financial services circles, with the US Justice Department involved in the case against Kwon.
References:
[1] CoinDesk. (2025). Do Kwon pleads guilty to TerraUSD fraud, forfeits $19 million. [online] Available at: https://www.coindesk.com/business/2025/08/12/do-kwon-pleads-guilty-to-terrausd-fraud-forfeits-19-million/
[2] Bloomberg. (2025). Terraform Labs Founder Do Kwon Guilty of Cryptocurrency Fraud. [online] Available at: https://www.bloomberg.com/news/articles/2025-08-12/terraform-labs-founder-do-kwon-guilty-of-cryptocurrency-fraud
[3] Reuters. (2025). Terraform Labs founder Do Kwon pleads guilty to crypto fraud in U.S. court. [online] Available at: https://www.reuters.com/business/finance/terraform-labs-founder-do-kwon-pleads-guilty-crypto-fraud-us-court-2025-08-12/
- Amid growing concerns about the security and integrity of cryptocurrency markets, this guilty plea from Do Kwon, co-founder of Terraform Labs, serves as a pivotal moment in the enforcement of accountability, signaling that AI-based technology, such as algorithmic stablecoins, will be subject to regulatory scrutiny in general-news and crime-and-justice spheres.
- The AI-backed Terra blockchain, which supported the stablecoin TerraUSD, was at the heart of a massive crypto fraud that led to losses totaling approximately $50 billion in 2022, and Kwon's guilty plea to fraud-related charges underscores the importance of implementing stronger security measures in the burgeoning field of technological innovation.
- As Kwon awaits sentencing in December 2025, the ongoing investigation into his fraudulent activities sheds light on the potential risks that digital asset markets may pose to investors worldwide, and the optimization of AI systems to prevent such criminal activities in the crypto sphere will become essential components of the general-news and crime-and-justice agenda.
