Do Kwon Punished to 15 Years in Prison: Timeline of the Terra Collapse and Its Impact on the Crypto Market

Terraform Labs co-founder Do Kwon was sentenced to 15 years in federal prison in the US for fraud related to the 2022 Terra ecosystem collapse. This court decision in New York marked the culmination of a multi-year investigation that revealed massive financial losses for investors, ranging from $40 to $60 billion and highlighted the vulnerabilities of algorithmic stablecoins.

From an Engineer at IT Giants to a Crypto Empire

Do Kwon, born in South Korea, began his career as a software engineer at companies like Microsoft and Apple, where he worked on software development. In 2016, he founded his first startup, Anyfi, focusing on decentralized communication networks. Around the same time, Kwon delved into blockchain technologies, seeing their potential for commercial applications.

In 2018, alongside entrepreneur Daniel Shin, he launched Terraform Labs - a company aimed at creating a user-friendly blockchain payment system for the masses. Under Kwon's leadership, the Terra ecosystem was launched, including the LUNA token and the algorithmic stablecoin UST, which was designed to maintain parity with the US dollar through arbitrage mechanisms. At their peak in early 2022, the market caps of UST and LUNA reached about $20 billion each, placing them in the top 10 coins on CoinMarketCap.

The Terra Collapse

The situation changed dramatically in May 2022 when UST lost its peg to the dollar. This triggered a chain reaction: a sharp devaluation of LUNA, mass sell-offs, and the complete collapse of the ecosystem. Many analysts and investors suspect that market manipulations by Sam Bankman-Fried (SBF), the founder of FTX, may have contributed to this, but there is still no official confirmation. The Terra crash, followed by the FTX collapse, became key factors in the downturn of the entire crypto market in the second half of 2022, wiping out billions of dollars from investors worldwide.

Estimates put the total losses at $40 to $60 billion, affecting thousands of retail investors. This event not only undermined trust in stablecoins but also led to a wave of bankruptcies in the industry, including Three Arrows Capital and other hedge funds.

Investigation, Flight, and Arrest

Following the collapse, authorities in South Korea and the US initiated investigations. Kwon was charged with fraud, market manipulation, money laundering, and other crimes. In September 2022, Interpol issued an international arrest warrant for him. Kwon went into hiding for several months, continuing to proclaim his innocence on social media. In March 2023, he was detained at Podgorica Airport in Montenegro while attempting to fly out using fake documents, Costa Rican and Belgian passports.

After his arrest, a prolonged battle for extradition ensued: South Korea and the US competed for the right to try Kwon. Ultimately, in 2024, he was extradited to the US, where in August 2025, he pleaded guilty to two counts of fraud.

The Judgment: Harsher Than Expected

During hearings in the Southern District of New York, prosecutors requested 12 years in prison as part of a plea deal, while Kwon's lawyers pushed for five years. However, federal judge Paul Engelmayer imposed a harsher sentence of 15 years - calling Kwon's behavior "reprehensible" and emphasizing the enormous harm to victims, as well as his attempts to flee.

"This is one of the most significant financial failures in recent history," the judge noted.

Kwon will receive credit for 17 months spent in a Montenegrin prison, and after serving half his term, he may be transferred to South Korea for further punishment. Additionally, the court confiscated assets worth $19 million.

This sentence serves as a "graphic reminder" to the crypto industry about the risks, as the judge pointed out. On X, users noted that 15 years is a relatively lenient term compared to other high-profile fraud cases: for example, Bernie Madoff received 150 years for $65 billion, and Allen Stanford, 110 years for $7 billion. Some speculate about a possible "Terra 2.0" after Kwon's release at age 50.

Market Reaction and Lessons for the Industry

Following the sentencing on December 11, 2025, tokens associated with Terra - LUNC (formerly LUNA) and USTC - dropped by 8-9%, with further sentiment decline. LUNC was trading at around $0.000041, facing delisting risks due to an upcoming trial in Korea. The Terra collapse remains one of the most painful events in crypto history, underscoring the need for strict regulation of stablecoins and project transparency.

This case is likely to influence future regulations: in the US and EU, tougher rules for algorithmic assets are already being discussed. For investors, the lesson is simple: even "stable" coins can collapse if their mechanisms can't withstand market pressure.