A U.S. federal judge has sentenced Terraform Labs founder Do Kwon to 15 years in prison for fraud linked to the collapse of the TerraUSD stablecoin and Luna token, one of the most destructive failures in cryptocurrency history.
The sentence was handed down on Thursday in Manhattan federal court and exceeded both the five years requested by Kwon’s defence team and the 12 years sought by prosecutors. The judge described Kwon’s actions as “fraud on an epic, generational scale,” according to reporting by the International Business Times.
Kwon, a South Korean national, pleaded guilty in August to one count of wire fraud and one count of conspiracy to commit securities, commodities and wire fraud. Prosecutors said he misled investors about the stability and backing of TerraUSD, an algorithmic stablecoin that collapsed in May 2022, wiping out an estimated $40 billion in market value.
Terra’s collapse and the crypto contagion
TerraUSD was designed to maintain a one to one peg with the U.S. dollar through an algorithmic mechanism linked to the Luna token, rather than through reserves of cash or government securities. When confidence in the system broke, the peg collapsed and triggered a self reinforcing sell off that rapidly destroyed both tokens.
The failure sent shockwaves through the wider crypto market. Several major crypto firms with exposure to Terra, including hedge fund Three Arrows Capital and lender Celsius Network, collapsed in the months that followed. Bitcoin and other major cryptocurrencies entered a prolonged downturn, transforming what had been a market correction into a full scale crisis.
While multiple factors contributed to the 2022 crypto crash, regulators and policymakers have consistently cited Terra as the event that exposed systemic weaknesses in unregulated stablecoin designs.
Judge sends a deterrence signal
By imposing a sentence longer than prosecutors requested, the court signalled that cooperation and guilty pleas will not necessarily shield crypto executives from severe punishment when investor harm is widespread.
For comparison, former FTX chief executive Sam Bankman-Fried received a 25-year sentence earlier this year, while Theranos founder Elizabeth Holmes was sentenced to 11 years. Kwon’s 15-year term places the Terra case among the most serious financial fraud prosecutions of the past decade.
Under U.S. federal guidelines, Kwon is expected to serve approximately 85 percent of his sentence, meaning he could be released in his late forties.
Regulatory consequences still unfolding
The Terra collapse accelerated stablecoin regulation globally. In the European Union, lawmakers finalised the Markets in Crypto-Assets regulation shortly after the crash, introducing strict reserve, governance and transparency rules for stablecoin issuers.
Central banks, including the European Central Bank, have also pointed to Terra’s failure as evidence that privately issued digital money can pose risks to financial stability. The episode strengthened arguments for public alternatives such as central bank digital currencies, including the digital euro.
For policymakers, the case underscores a core lesson of the crypto era: technological complexity does not exempt projects from basic fraud laws, and stablecoins that rely on confidence alone can unravel rapidly under stress.