One of the prevailing concerns surrounding the cryptocurrency world is safety for investors. Combatting hackers, fraudsters, and security hacks is an ongoing challenge. In a piece of crypto news that no doubt shakes the trust of crypto investors, a prominent figure is in the crosshairs.
Do Kwon, an entrepreneur in the crypto space who is responsible for the creation of TerraUSD and Luna, pleaded guilty to a pair of fraud counts recently. Both tokens failed on a massive level in 2022, triggering a meltdown of the crypto market in the process.
Two Counts of Fraud
Kwon was in attendance at a federal court in New York this week. There, he pleaded guilty to one count of committing wire fraud and one count of conspiracy to commit commodities fraud, securities fraud, and wire fraud.
The judge, Paul A. Engelmayer, agreed to the plea, according to a spokesman for the U.S. attorney’s office in Manhattan. As part of the plea, Kwon agreed to surrender more than $19 million in total proceeds from his dealings in cryptocurrency.
The judge could ultimately decide on the maximum penalty, which could see Kwon face 25 years in prison. That said, part of the plea deal includes the government not asking for a sentence of more than 12 years from the judge.
The 33-year-old South Korean citizen will serve at least the first half of his sentence in the United States but could seek a transfer to his home country. His lawyer, Sean Hecker, said through a statement that his client “accepted responsibility for making false and misleading statements” to people who bought his cryptocurrencies as well as for “misleading the Terra community.”
Also, through a statement, interim U.S. attorney for the Southern District of New York Jay Clayton said, “Do Kwon used the technological promise and investment euphoria around cryptocurrency to commit one of the largest frauds in history.”
U.S. prosecutors said that Kwon misrepresented features of the tokens that would keep them at $1 without the need for outside intervention. In 2021, it is alleged that Kwon made an arrangement to have a crypto trading firm surreptitiously purchase millions of dollars’ worth of TerraUSD in order to restore its value, even as he told his investors that the Terra Protocol – Terra’s algorithm – was ultimately responsible.
Both tokens would collapse the following year, leading to major issues for the entire cryptocurrency marketplace. “In 2021, I made false and misleading statements about why [TerraUDS] regained its peg,” he said in court. “What I did was wrong, and I want to apologise for my conduct.”
Fall from Grace
By entering into a plea, the fall from grace for the once vaunted wrongpreneur is now complete. Known for his penchant for trash-talking, Kwon not only created the TerraUSD and Luna tokens but also ran the company Terraform Labs. His company managed to raise more than $200 million from a number of investment firms, most prominently Lightspeed Venture Partners.
At one point, Luna’s value alone had shot up to more than $40 billion. Kwon stood out because of his interviews and social media posts, many of which hyped Luna as having the potential to change the world. He regularly rallied supporters and investors, dubbed “Lunatics”, to his charge.
In May 2022, however, both TerraUSD and Luna collapsed. In the process, the fall managed to tank the price of Bitcoin, creating a loss of more than $300 billion in value across the entire cryptocurrency marketplace. Because of this meltdown, many investors pulled their money out of the market. As a result, other major firms like FTX were caught up in the mix.
At the time, an arrest warrant was issued for not only Kwon but also five other individuals on myriad financial charges. The international police organisation Interpol issued a “red notice” calling for Kwon’s arrest.
In March 2203, Kwon was apprehended and arrested in Montenegro as he was in the process of boarding a flight. He was subsequently charged with fraud in New York by federal prosecutors. He would eventually arrive in the United States in December 2024, where he remained in custody.
The crypto marketplace would eventually rebound, and Bitcoin has since reached new heights. Even the President of the United States, Donald Trump, has been a vocal supporter of the industry. He also signed an executive order to create a national Bitcoin reserve while also ending the industry-wide regulatory crackdown.
Kwon’s Failures Illustrate the Downsides of Investing in Crypto
While it may seem like an isolated instance, Kwon’s guilty plea further underscores what doubters have been saying about cryptocurrencies for years. There are a few key issues that have kept investors from jumping in, Kwon’s arrest further underscoring those issues.
User Risk
Traditional finance comes with a measure of risk, but that is different from the risk that crypto investors face on a regular basis. While blockchains make it impossible to reverse or cancel a transaction after it has already been approved by the chain, users aren’t out of the woods.
Unlike traditional finance, there is no recovering your password or credentials; too many guesses and you will be locked out forever. That’s not even considering tokens lost through burning or being removed from use.
Regulatory Risks
Arguably the biggest downside right now to investing in crypto is knowing that there is still relatively little oversight to be had. Aside from major tokens like Bitcoin, Ethereum, and others, the majority of crypto tokens are still unregulated.
Though there are changes coming down the pike, nothing is certain. A crypto-friendly U.S. presidency has already proven to be so effective. A potential regulatory crackdown would make it quite difficult for investors to sell their holdings. There is also the possibility of a major drop, as was the case when TerraUSD and Luna fell apart and took the rest of the crypto marketplace with them.
Market Manipulation
Kwon’s plea is a perfect example of how market manipulation can negatively impact the cryptocurrency marketplace. Kwon making erroneous or untrue statements led investors to believe that TerraUSD and Luna were in a better position than they actually were meant to be.
Market manipulation remains a challenge within the crypto space. Organisations, exchanges, and influential people are all trying to promote their tokens. That could lead to false or misleading statements that ultimately defraud investors.
Crypto Moves On
Though Kwon’s guilty plea is something that many wish could have been avoided, there is a positive aspect of this entire endeavour. It shows that the cryptocurrency market can rebound from virtually everything as Bitcoin continues to push its all-time highs.
Still, instances like this further underscore the inherent challenges the market faces. When a prominent coin crashes, let alone is linked to fraudulent activity, it is always something that leaves the market holding its breath. For now, however, all is well – for everyone except Do Kwon, that is.
