The collapse of the Terra ecosystem remains one of the most significant disasters in cryptocurrency history, wiping out roughly $40 billion in market value and affecting over a million investors.
Early Career and the Birth of Terra
Born in Seoul in 1991, Do Kwon was a standout student who studied at Stanford and worked as a software engineer at Microsoft. After returning to South Korea, he co-founded Terraform Labs in 2018 with Daniel Shin. The project quickly gained momentum, raising over $200 million from major venture capitalists to launch the Terra blockchain and its native token, LUNA.
The Era of Rapid Growth
Between 2020 and 2022, Kwon introduced TerraUSD (UST), an "algorithmic stablecoin." Unlike traditional stablecoins backed by cash, UST maintained its value through a burn-and-mint relationship with LUNA. Growth exploded due to the Anchor Protocol, which offered an unsustainable 19.5% annual yield on UST deposits. By April 2022, $LUNC hit an all-time high of approximately $116.
The 2022 Collapse
The system unraveled in May 2022 when massive withdrawals from Anchor and a lack of liquidity caused UST to lose its $1 peg. Despite the Luna Foundation Guard selling off its Bitcoin reserves to save the ecosystem, the reserves were exhausted. Both UST and LUNA crashed to near zero, causing a global financial contagion.
Legal Fallout and Sentencing
2023: Do Kwon was arrested in Montenegro for using a forged passport while attempting to flee.
2024: Terraform Labs filed for bankruptcy. A US jury found the company and Kwon guilty of civil securities fraud, resulting in $4.5 billion in penalties.
2025: Kwon pleaded guilty to federal charges of wire fraud and conspiracy, admitting he misled investors. He was sentenced to 15 years in federal prison and ordered to forfeit $19 million. The presiding judge described the scheme as a "fraud of generational scale."
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