What’s happening around Terraform Labs and Do Kwon now?

The Terraform Labs and UST crisis triggered a market crash, costing investors billions. Now, almost two years later, what is the current status of this cryptocurrency turmoil?

Do Kwon, the founder of Terraform Labs and developer of the TerraUSD (UST) and Luna tokens, continues to be a controversial and mysterious figure in the cryptocurrency world. By mid-March 2022, the value of UST and Luna collapsed to near zero, quickly wiping out approximately $60 billion from investors’ holdings.

Since then there have been important developments. Kwon is awaiting extradition and attempts are being made to revive the previously successful project. The ongoing situation with Terraform Labs and Do Kwon is still evolving.

How Earth’s ecosystem collapsed

In May 2022, coinciding with news of the investigations, the price of the UST fell to $0.98, losing its peg to the dollar. Do Kwon reassured investors, saying that the situation is under control. However, the following day saw a further decline in the value of the token, which dropped to $0.35.

Kwon then took to Twitter, encouraging his followers to invest more in a bid to shore up the dollar peg. This strategy, however, proved unsuccessful.

Investors began actively selling UST and Luna, causing Luna’s value to catastrophically plummet to $0.10, a drop of 96%. Do Kwon did not comment on this situation, and social media users became convinced that Terra Ecosystem was an ordinary pyramid scheme launched to steal investors’ money.

The awakening of Terraform

In mid-May 2022, Kwon ended his silence and revealed plans for a new Terra blockchain, excluding UST. This proposal received the support of 65% of investors.

Terra 2.0 debuted on May 28, 2022. However, soon after its launch, the value plummeted rapidly: Luna lost 77% of its value, followed by a further 20% decline on June 8. Amid these developments, Kwon has restricted his Twitter account, limiting access to select followers.

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Investigation into Terraform Labs by US authorities

In June 2022, the US Securities and Exchange Commission (SEC) launched an investigation into Terraform Labs and its algorithmic stablecoin. The SEC investigation focused on whether the marketing of USTs violated federal investor protection laws before the stablecoin collapse. Specifically, SEC prosecutors have been examining Terraform Labs’ activities for potential violations of securities and investment products laws.

In February 2023, the SEC accused Terraform Labs and co-founder Do Kwon of conducting a “multibillion-dollar securities fraud.” In December 2023, a court sided with the regulator, ruling that the UST, LUNA, wLUNA and MIR assets constituted investment contracts.

South Korea’s investigation into Terra

At the end of May 2022, the South Korean prosecutor’s office launched an investigation into the creators of the recently failed Terra cryptocurrency project. The goal was to determine whether intentional price manipulation or other illegal actions were involved in the crash.

As part of the investigation, former employees of Terraform Labs, involved in the initial development of the Terra ecosystem in 2019, were called in for questioning.

In September 2022, a South Korean court issued an arrest warrant for Do Kwon, along with five others, on charges of violating the country’s capital markets laws. At the time of the warrant, all were reportedly in Singapore.

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At the same time, representatives of Terraform Labs believe that the Korean prosecutor’s office exceeded its authority in prosecuting Terra founder Do Kwon.

Last June, journalists reported that Kwon could face legal repercussions in multiple jurisdictions, starting with South Korea. Dan Sung-han, the lead investigator on the Kwon case, predicts that Kwon could face a significant sentence, potentially of more 40 years, in the case of financial fraud.

According to Sung-han, prosecutors have already seized 246.8 billion won (about $190 million) related to Kwon’s case and intend to freeze another 31.6 billion won (about $24.25 million).

Terraform Labs bankruptcy

On January 21, Terraform Labs filed for bankruptcy. According to court documents, the company’s assets and liabilities are estimated at between $100 million and $500 million, with the number of creditors ranging between 100 and 199.

Source: United States Bankruptcy Court for the District of Delaware

Terraform Labs has stated its commitment to meeting all financial obligations to employees and vendors throughout the Chapter 11 process without the need for additional financing. Furthermore, the company aims to continue developing its web3 offerings.

Do Kwon’s escape and extradition

Do Kwon lived in Singapore until mid-September 2022. At that time, South Korea issued an arrest warrant against him for alleged violations of the Capital Markets Law, and Interpol issued a red notice, forcing Kwon to escape.

For several months Do Kwon was apparently hiding in Serbia, but his exact whereabouts were unknown. In March 2023, authorities in Montenegro arrested him for attempting to fly to Dubai with a fake passport, sentencing him to a four-month prison sentence.

For nearly a year after his arrest, there has been ongoing debate over whether to extradite Kwon to the United States or South Korea. The government of Montenegro has reconsidered its decision to deport the Terraform Labs founder several times.

On March 5, the plan to hand the businessman over to US authorities was canceled. The Court of Appeal of Montenegro overturned the lower court’s decision, citing “serious violations of the provisions of criminal proceedings.”

As a result, the Supreme Court of Montenegro decided to extradite Do Kwon to South Korea. This ruling allows for a streamlined process to transfer defendants to South Korean officials for further legal action.

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summing up

Nearly two years have passed since the collapse of a once-prominent cryptocurrency project. While this chapter may seem destined to close, ongoing events suggest otherwise.

The bankruptcy of Terraform Labs and the extradition of its founder, Do Kwon, mark the beginning of a new phase in one of the biggest collapses in cryptocurrencies. The fate of investors who lost billions in the project remains uncertain, as does the specific nature of the sanctions Kwon may face.

With two years of investigation under his belt, South Korean authorities are expected to take a firm stance against Kwon for his alleged deception, evasion and failure to cooperate.

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