Crypto King’ Do Kwon, behind TerraUSD & Luna, pleads guilty to ₹3.5-lakh-crore fraud
In a shocking turn of events, South Korean entrepreneur Do Kwon, widely referred to as the ‘Cryptocurrency King’, has pleaded guilty to conspiracy to defraud and wire fraud. Kwon, the co-founder of Terraform Labs, which developed the cryptocurrencies TerraUSD (UST) and Luna (LUNA), is facing a maximum sentence of 25 years in prison. However, with his admission of guilt, his sentence may be reduced to 12 years.
The collapse of TerraUSD and Luna in May 2022 sent shockwaves through the cryptocurrency market, resulting in the loss of approximately $40 billion (nearly ₹3.5 lakh crore). This massive loss had far-reaching consequences, not only for individual investors but also for the global economy.
Kwon, a 31-year-old entrepreneur, was a prominent figure in the cryptocurrency world. He co-founded Terraform Labs in 2018 with Daniel Shin, a Korean-American entrepreneur. The company’s mission was to create a stablecoin, TerraUSD (UST), which was pegged to the US dollar. The idea was to provide a more stable alternative to traditional cryptocurrencies like Bitcoin.
TerraUSD was designed to be a ‘stablecoin’, meaning its value was pegged to the value of the US dollar. This was achieved through a complex algorithm that minted new UST tokens when the price of UST fell below $1, and burned them when the price rose above $1. This was intended to keep the value of UST stable and prevent it from fluctuating wildly like other cryptocurrencies.
However, the algorithmic stability mechanism had a flaw. When the price of UST fell below $1, the algorithm minted new tokens, which put further downward pressure on the price. This created a vicious cycle, causing the price of UST to plummet. On May 9, 2022, the price of UST fell below $0.01, wiping out investors’ fortunes and causing a global cryptocurrency market meltdown.
The collapse of TerraUSD and Luna had severe consequences for investors, including:
- Losses: Investors lost an estimated $40 billion (nearly ₹3.5 lakh crore) in the collapse of TerraUSD and Luna.
- Market volatility: The collapse of TerraUSD and Luna triggered a global cryptocurrency market meltdown, causing prices to plummet and investors to panic.
- Regulatory concerns: The collapse of TerraUSD and Luna raised serious regulatory concerns, with many calling for stricter regulations on the cryptocurrency market.
Kwon’s plea of guilty to conspiracy to defraud and wire fraud marks a significant development in the case. The US Department of Justice (DOJ) had charged Kwon with 11 counts, including conspiracy to commit wire fraud, wire fraud, and commodities fraud.
According to the indictment, Kwon and his co-conspirators lied to investors about the stability and security of TerraUSD and Luna, and used fake audit reports and other false information to convince investors to buy the tokens. The indictment also accused Kwon of using investor funds to purchase other cryptocurrencies and assets, rather than using them to support the stability of TerraUSD and Luna.
Kwon’s guilty plea comes after a protracted legal battle. In September 2022, the US District Court in Manhattan issued a warrant for Kwon’s arrest, and he went into hiding. Kwon was eventually arrested in Montenegro on March 24, 2023, and has been in custody since then.
The consequences of Kwon’s guilty plea are significant. With his admission of guilt, Kwon faces a maximum sentence of 12 years in prison, down from the original 25 years. Kwon will also be required to pay restitution to investors who lost money in the collapse of TerraUSD and Luna.
The collapse of TerraUSD and Luna serves as a stark reminder of the risks and unpredictability of the cryptocurrency market. It also highlights the need for stricter regulations and oversight to protect investors and prevent similar collapses in the future.
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