Do Kwon Faces 12 Years: Prosecutors Demand Maximum Sentence in Terra Collapse Case
Prosecutors have thrown the book at Terraform Labs co-founder Do Kwon, seeking a 12-year prison sentence for his role in the $40 billion ecosystem collapse.
The Reckoning Arrives
South Korean authorities aren't pulling punches. The recommended sentence marks one of the most severe penalties sought against a crypto founder, signaling a hardline shift in regulatory tolerance for what they deem financial fraud on a blockchain.
Building on a House of Cards
The case hinges on allegations that Kwon and his team misled investors about the stability of TerraUSD (UST), the algorithmic stablecoin that famously de-pegged. Prosecutors argue the entire project's promise—a decentralized financial system—was built on knowingly flawed mechanics.
A Chilling Effect or a Necessary Purge?
The push for a 12-year stint sends a stark message to the industry: play fast and loose with retail money, face traditional consequences. Some see it as a necessary cleansing; others fear it could stifle the risky innovation that sometimes—just sometimes—pays off for everyone except the bag-holders.
The Final Countdown
With the sentencing hearing looming, the crypto world watches. Will the judge agree with the prosecution's harsh assessment? The outcome will set a precedent, potentially reshaping how founders approach accountability—or at least how they structure their legal teams. After all, in high finance, the only algorithm that never fails is the one that bills by the hour.
Prosecution vs. Defense sentencing positions
While the original charges could have carried up to 25 years in prison, Kwon’s plea deal limits prosecutors to asking for a 12-year term, which they are now requesting in full.
Kwon’s legal team is arguing for a far lighter sentence. In a filing last week, his lawyers argued that five years WOULD be sufficient punishment. They noted that he has already spent nearly three years in detention.
As part of the plea deal, Kwon has agreed to forfeit $19.3 million, including crypto-related assets. Prosecutors are not seeking restitution for victims, saying the global scale of losses makes it too difficult to calculate individual claims.
TerraUSD collapse
In May 2022, Terraform Labs’ stablecoin TerraUSD (UST) lost its dollar peg, causing a “death spiral” that also crashed the Terra network’s native token LUNA.
The Terra ecosystem’s collapse wiped out over $40 billion in market value and shook global crypto markets. Panic among UST holders fueled a surge in LUNA redemptions, flooding the market and deepening the crash.
Following the fallout, South Korean investors filed a lawsuit against Do Kwon for fraud and sought seizure of his assets. They also launched an investigation into Terraform Labs. They examined whether Co-Founder Do Kwon knew about flaws in UST’s design and if the token’s price had been manipulated.
A hard trip home in a changing crypto world
Kwon’s path to U.S. custody was long and complicated. He was arrested in Montenegro in March 2023 for using a forged passport while trying to travel to Dubai.
Both the U.S. and South Korea sought his extradition, but he was ultimately sent to the U.S. in early 2025 after nearly two years in detention. Prosecutors say they may support allowing him to serve part of his sentence in South Korea if he meets the criteria.
The case is unfolding at a time when crypto enforcement in the U.S. has become more politically divided.
In October, President Donald TRUMP pardoned Binance Co-Founder Changpeng Zhao, who had been convicted of failing to maintain proper anti-money laundering systems. Even so, Kwon’s prosecution remains one of the most consequential crypto-fraud cases since Terra’s collapse reshaped the industry.
