Do Kwon, the disgraced cryptocurrency entrepreneur whose Terraform Labs created the TerraUSD stablecoin and Luna token that spectacularly collapsed in May 2022, has been sentenced to 15 years in federal prison for orchestrating what a judge called "fraud on epic, generational scale."

The sentence, handed down Thursday in Manhattan federal court, exceeded both the five years Kwon's defense team requested and the 12 years federal prosecutors sought—a rare instance where a judge determined that even the government's recommendation was too lenient for the scope of Kwon's deception.

The 33-year-old South Korean entrepreneur pleaded guilty in August to one count of wire fraud and one count of conspiracy to commit wire, securities, and commodities fraud, admitting he lied to investors about the safety and backing of his products before the ecosystem imploded, wiping out approximately $40 billion in value and triggering a broader cryptocurrency market crash.

"Do Kwon used the technological promise and investment euphoria around cryptocurrency to commit one of the largest frauds in history," said Jay Clayton, the United States Attorney for the Southern District of New York, when Kwon entered his guilty plea.

Thursday's sentencing brings a measure of closure to one of cryptocurrency's most devastating collapses—though thousands of retail investors who lost life savings in Terra and Luna will never recover their losses, and the broader crypto industry continues grappling with the regulatory and reputational fallout from Kwon's fraud.

To understand the magnitude of Kwon's crime, it's essential to understand what made TerraUSD different from other stablecoins—and why that difference proved catastrophic.

Stablecoins are cryptocurrencies designed to maintain a stable value, typically pegged to the US dollar. The largest stablecoins like Tether (USDT) and USD Coin (USDC) maintain their dollar peg by holding reserves of actual US dollars, Treasury bonds, or other financial instruments. When you hold $1 of USDT, theoretically $1 of real-world assets backs it.

TerraUSD (UST) worked differently. It was an "algorithmic" stablecoin that maintained its dollar peg not through asset backing but through an automated arbitrage mechanism with Luna, a free-floating cryptocurrency token.

The system worked like this: If TerraUSD's price rose above $1, the algorithm would allow users to burn $1 worth of Luna tokens to create new TerraUSD, increasing UST supply and pushing the price back down. If TerraUSD fell below $1, users could burn 1 UST to create $1 worth of Luna, reducing UST supply and pushing the price back up.

This elegant mathematical mechanism worked beautifully—until it didn't.

The design contained a fatal flaw: it relied entirely on confidence. If UST holders lost faith in the peg and began selling en masse, the death spiral would be unstoppable. As UST fell below $1, massive Luna creation would flood........

© International Business Times