Terraform Labs co-founder Do Kwon has been extradited to the United States where he faces charges over the collapse of Terra. At his initial appearance, he pleaded not guilty.
According to Reuters, Do Kwon, co-founder of Terraform Labs and the central figure in Terra’s collapse, is in the eye of the storm following his recent extradition to the United States. On January 2, Kwon appeared in court in New York, where he pleaded “not guilty” to the multiple charges against him, including fraud, money laundering and conspiracy.
Do Kwon's story is emblematic in the cryptocurrency field, highlighting his rise as one of the greatest innovators in blockchain technology with the Creation of the algorithmic stablecoin TerraUSD (UST)However, his career took a drastic turn when he became a symbol of the sector's vulnerabilities after the collapse of this stablecoin, which caused significant losses in the market.
His extradition from Montenegro, where he was arrested in March 2023 when he used false documents, has sparked a debate about regulation and justice in the crypto world. Kwon now faces a trial that will determine his future and could have profound repercussions for the industry and the digital financial ecosystem.
Do Kwon says he is innocent in his first hearing
According to Reuters, Kwon pleaded not guilty to the charges against him during his first hearing on Thursday. The outlet reported that the co-founder of Terraform Labs was charged with criminal fraud related to the collapse of TerraUSD and Luna. Prosecutors alleged that Kwon misled investors about the stability of TerraUSD, which was supposed to maintain a value of $1 but collapsed in May 2022, taking Luna with it and creating a domino effect in the cryptocurrency market.
As reported by this outlet at the time, the collapse of Terra's blockchain ecosystem resulted in losses estimated at $40.000 billion.
Reuters noted that Kwon also faces civil charges filed by the Securities and Exchange Commission (SEC) since February 2023. The agency accused him of serious violations related to the issuance and marketing of unregistered securities.
The collapse of Terra-Luna
The story of Terraform Labs and its co-founder Do Kwon has become a symbol of the difficulties in the cryptocurrency sector, where the promise of safe investments turned into a financial disaster.
As presented by prosecutors in the first hearing of Kwon’s trial, in 2021 the stablecoin TerraUSD (UST) had briefly lost its peg, leading its co-founder to “artificially prop up its price.” Prosecutors claimed that Kwon arranged for a high-frequency trading firm to secretly buy millions of dollars worth of UST to trick the community into believing that he had solved the problems with the stablecoin’s peg, introducing the “Terra Protocol.” This led to increased confidence in the project, boosting the price of LUNA, the native cryptocurrency of Terra Network.
However, in 2022, when the UST stablecoin lost its peg to the dollar again, Kwon was unable to do the above and the cryptocurrency collapsed, dragging LUNA down with it and affecting the entire crypto market.
Prosecutors claimed that Terra’s apparent success concealed a series of misleading statements promising stability while in reality relying on unsustainable mechanisms to maintain UST’s peg to the dollar. The stablecoin’s depeg from the dollar, an event that occurred in May 2022, led to a dramatic collapse, resulting in an estimated $40.000 billion in losses for investors.
With the start of his trial, Kwon joins a growing list of prominent figures in the crypto world, such as Sam Bankman-Fried, who are facing similar charges following the market crash of 2022. However, the magnitude of the Terraform Labs case and its impact on thousands of retail and institutional investors make it one of the most significant to date. Some experts suggest that this will be the tipping point that drives greater regulation in the sector. However, the answer could lie in the upcoming hearings in this trial. Kwon is due to appear in court on next January 8th.
