After a long-standing legal battle in the realm of cryptocurrency, Terraform’s former chief has finally taken accountability for the collapse of the once-promising Terra platform.
Court proceedings have shed light on the extent of the misconduct, offering a glimmer of closure to those impacted by the ordeal.
Taking Responsibility for Misdeeds
Do Hyeong Kwon, also known as Do Kwon, has pleaded guilty to charges of conspiring to commit commodities, securities, and wire fraud, as well as engaging in wire fraud related to deceptive practices within Terraform, as confirmed by U.S. Attorney Jay Clayton of the Southern District of New York.
Terraform, under Kwon’s leadership, was marketed as a self-sustaining decentralized financial ecosystem, utilizing cutting-edge blockchain technology to offer a range of financial services, including its own cryptocurrency, payment system, stock market, and savings bank.
However, the stark reality was that the instruments provided to investors and users did not operate as advertised, deceiving individuals into believing that all was well. Do Kwon admitted his wrongdoing before U.S. District Judge Paul A. Engelmayer.
Clayton remarked, “Do Kwon exploited the technological hype and investment frenzy surrounding cryptocurrency to perpetrate one of the most significant frauds in history. He lured billions of dollars into Terraform’s ecosystem by promising a stablecoin that would self-stabilize. By the time the truth emerged, the ecosystem had collapsed, resulting in billions of dollars in losses for global investors.”
According to the Superseding Indictment, as well as subsequent legal proceedings and public disclosures, Terraform was established in 2018, setting itself apart by issuing algorithmic stablecoins through the “Terra Protocol.”
These stablecoins purportedly maintained their value irrespective of market fluctuations. In September 2020, TerraUSD (“UST”), pegged to the U.S. dollar, was introduced, with promotional materials asserting that under the protocol, one UST could always be exchanged for $1 worth of the platform’s native token, LUNA, and vice versa.
Unveiling the Deceptions
Over time, the company and its affiliates developed and promoted various financial products as decentralized finance applications on the Terra blockchain, aiming to boost user numbers and transaction volumes. Some of these products included:
- Chai, a purported Korean payment platform utilizing the Terra blockchain for transactions around June 2019, was actually running on conventional networks and methods.
- Mirror Protocol, launched in December 2020, allowed users to trade synthetic versions of assets like U.S.-listed stocks using the now-defunct blockchain. In reality, Terraform controlled the protocol and manipulated asset prices through trading bots.
- The Luna Foundation Guard Ltd (“LFG”), introduced around January 2022, allegedly held a multi-billion-dollar cryptocurrency reserve known as the “LFG Reserve” to maintain UST’s peg to the dollar. It was claimed to be overseen by an independent governing body, but Terraform maintained control.
Do Kwon secured funding from various U.S. and international investment firms, with agreements to purchase or lend cryptocurrencies generated on the Terra blockchain. At its peak, the indicted co-founder became one of the wealthiest figures in the industry.
Terraform reached its zenith in early 2022, with UST and LUNA’s combined market cap surpassing $50 billion, largely fueled by misrepresentations about the company and its offerings. By May 2022, UST’s dollar peg had begun to falter, a trend that had commenced the prior year.
Although the discrepancies were concealed in 2021, they could not be masked in the following year, resulting in a collapse and losses exceeding $40 billion. Subsequently, arrest warrants and an Interpol Red Notice were issued for the former CEO.
In late March 2023, Do Kwon was apprehended in Europe using a counterfeit passport. Following a U.S. extradition request, debates ensued over the jurisdiction for his trial. Ultimately, he was repatriated to the United States at the close of the previous year.
Initially pleading not guilty in June, Do Kwon ultimately succumbed to the litany of charges against him. As part of his plea deal, he will forfeit $19 million from the fraudulent activities and face sentencing by Judge Engelmayer on December 11, 2025.
The article “Unveiling the Downfall of Terraform: Do Kwon’s Admission of Guilt” was first published on CryptoInsight.
