Do Kwon accepted the plea, limiting defense options despite potential legal flaws in fraud claims.
Chen argues Terra losses stemmed from market forces, not Kwon’s statements or deliberate misrepresentation.
Anchor’s 20% yield posed real risk, but collapse resulted from market pressures, unlike FTX or Celsius theft cases.
Do Kwon’s guilty plea in the U.S. federal court has stirred significant controversy across the cryptocurrency industry. Will Chen, former Terra Form Labs (TFL) insider, expressed doubts about the legal case’s structure and outcome.
He stated, “I’m not here to defend Do Kwon the person. But the legal case is broken.” Chen explained that the plea meant Kwon accepted the government’s charges without room for challenge, raising questions about proportionality and proper defense.
Chen noted the plea deal likely reflected pragmatic legal calculations. He wrote that defense attorney Patton, former attorney-in-chief for federal defenders, probably weighed the trial’s uncertainty against a prison term of 7–9 years.
Serving half with credit for time in Montenegro could have allowed Kwon to return to Korea in roughly two years. Chen argued the plea was influenced by Kwon’s physical and emotional isolation while on the run, emphasizing the toll of stress, uncertainty, and distance from family.
Disputed Fraud Allegations
According to Chen, the government’s core theory on Terra’s collapse involves Kwon allegedly misleading investors about the algorithm’s ability to maintain UST’s peg. Jump Trading’s secret backstop, the prosecution claims, concealed algorithm weakness. However, Chen argued the situation is more nuanced.
He explained that Kwon’s statements suggested less safety than actually existed. “If he’d disclosed Jump, investors would have been more confident, not less,” Chen wrote. The defense could have argued that the non-disclosure of Jump acted as a strategic, game-theoretic decision rather than fraud.
Chen also emphasized that decentralization and governance arguments were largely symbolic. He noted, “Decentralization of governance doesn’t make a stablecoin more resistant to bank runs.” Investors had access to public data, white papers, and criticism from other sources. Losses were not solely caused by Kwon’s statements, as the environment included countless market signals, yielding strategies, and macroeconomic pressures.
Anchor and Investor Impact
Chen acknowledged that Anchor’s unsustainable 20% yield presented the clearest risk of misrepresentation. Investors assumed returns were stable while reserves were depleting. Yet, Chen argued the collapse stemmed from market pressures, not deliberate fraud. He differentiated Terra from FTX or Celsius, where funds were stolen. Terra losses resulted from value destruction, not misappropriation.
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