Do Kwon&#039, s Terra Trial Set for 2026— Here&#039, s What You Need to Know

On January 26, 2026, Do Kwon, a co-founder of Terraform Labs, will stand trial in the U.S. District Court for the Southern District of New York. He’ll expend the next year in national jail, after his attorneys consented to his incarceration.

Criminal fraud allegations relating to the catastrophic$ 40 billion collapse of the TerraUSD ( UST ) stablecoin and its sister token LUNA will be brought before the trial, which is anticipated to last four to eight weeks.

This event is the result of international legal conflicts, financial ruin, and accusations of deception that destroyed the promises that once attracted millions of crypto owners.

Do Kwon, who pleaded not guilty to the charges last year, has been accused of various matters of fraud, including stocks scams, wire fraud, and conspiracy to commit money laundering.

Prosecutors allege the Terra leader orchestrated techniques to manipulate markets, portray the balance of Terraform’s products, and dirty proceeds through Swiss bank accounts and other blockchains.

If convicted, the 33-year-old heads a maximum sentence of 130 years in prison.

In addition to the legal fees, Kwon faces several civil claims. In a case brought by the SEC in April 2024, a New York judge found Kwon guilty of fraud.

In June 2024, Terraform Labs and the SEC reached a$ 4.47 billion lawsuit. Additionally, allegations against Kwon have been made by the Commodity Futures Trading Commission ( CFTC ), which only adds to his legal challenges.

Speaking to , Sid Powell, CEO &amp, co-founder of Maple Finance, called the Terra habitat decline a “wake-up contact” for DeFi, or decentralized finance—a catch-all term that describes the various methods and systems built around automated, crypto-driven financing items.

” When it comes to regulatory outcomes, politicians began cracking over on DeFi practices more aggressively”, said Powell. ” Designers responded by focusing on resilience and risk management, combining over-collateralization models, and exploring cross systems that combine analytic design and collateral,” the authors wrote.

How$ 40 billion was lost in time

One of the most disastrous events in crypto history is the decline of Terraform Labs ‘ habitat in May 2022. It wiped out$ 40 billion in market value almost overnight.

In a program that promised balance and great returns, both UST and LUNA were intended to work up, but flaws in its construction caused a severe failure. The balance of UST depended on a system with an algorithm that maintained its worth using a burn-and-mint mechanism and LUNA.

People could burn UST to basil LUNA, reducing provide and restoring the peg, when UST traded below$ 1. Likewise, when UST traded above$ 1, LUNA may get burned to basil more UST.

The stablecoin’s money nail dropped on May 6, 2022 as a result of a significant UST downturn on Curve Finance. Stress set in, leading to bulk redemptions.

As UST’s worth fell, the burn-and-mint method greatly inflated LUNA’s offer, diluting its value. Within days, UST plummeted to$ 0.13, while LUNA’s price collapsed from$ 64 to fractions of a cent.

The algorithmic system failed to stabilize UST, leading to a death spiral that destroyed the ecosystem’s worth and had an impact on more than a million estimated victims.

The crypto industry experienced the same effects as the collapse, causing the FTX exchange to eventually fail and causing several interconnected projects to file for bankruptcy.

There was also reinforced skepticism toward high-yield generating crypto projects ( since the crash ), prompting a shift in focus toward more sustainable projects,” Sei Labs co-founder Jayendra” Jay” Jog told “. Trust in algorithmic stablecoins—seen as innovative but inherently risky—diminished, prompting investors to focus on fiat-backed stablecoins such as USDC and USDT.”

Extradition tug-of-war

Following the TerraUSD collapse, Kwon went on the run, evading international authorities. In Montenegro in March 2023, Kwon was detained for attempting to travel with a fake passport.

Both the U. S. and South Korea sought his extradition. Montenegro’s courts initially ruled in favor of South Korea, but U. S. prosecutors ultimately secured his extradition in December 2024.

Kwon showed up in court and agreed to remain in custody without being released from custody upon his arrival in the United States.

The instability of algorithmic stablecoins and unregulated financial systems was exposed by the Terra crash. In the largely unregulated crypto space, Kim is currently facing a trial that will serve as the benchmark for accountability.