Terraform Labs co-founder Do Kwon was extradited to the United States for trial at the end of last year, and this major event involving $40 billion vanishing now seems to have a new turn. According to the court schedule, New York Southern District Judge Paul Engelmayer will preside over a hearing on Tuesday morning; the judge noted in the notification that the defendant "may change his plea," which means Kwon's previous stance of "not guilty" could change at any time.
Answer Change: Negotiation Signs Emerge
According to court documents, both prosecution and defense have been negotiating for months. The judge emphasized in the summons that if Kwon chooses to plead guilty, he will be required to provide a "narrative plea" in court, which means detailing the criminal elements item by item. The judge wrote:
"Notification has been received that the defendant may change his plea."
Legal observers point out that narrative pleas are usually accompanied by plea agreements, where defendants detail facts in exchange for dropping some charges or seeking a lower sentence. If an agreement is reached, the case processing time will be significantly accelerated.
From Depegging to Prosecution: Terra Collapse Review
Some readers may have forgotten or were not yet involved at the time, so here's a quick explanation.
The event goes back to May 2022: After the algorithmic stablecoin TerraUSD (UST) depegged from the US dollar, it triggered a chain of sell-offs. UST's support token Luna also collapsed in price, with the entire ecosystem's value reduced to nearly zero, leaving many users with massive losses.
After the disaster, Kwon's whereabouts became mysterious until March 2023, when he was arrested in Montenegro using a forged passport. The extradition process took over a year, and he finally arrived in the United States in late 2024, pleading "not guilty" in January 2025 to multiple serious charges including securities fraud, market manipulation, and money laundering.
Apart from the criminal case, the SEC's civil lawsuit had already concluded earlier. In June last year, the US court approved Kwon and Terraform Labs paying a $4.5 billion fine and recovery, and ruled that they committed fraud against investors. Although this ruling belongs to a different procedure from the criminal case, it adds legal pressure on Kwon.
Potential Impact
If Kwon agrees to plead guilty at the hearing, it will be the first case in the US judicial system where a defendant criminally admits guilt due to an algorithmic stablecoin collapse. Observers generally believe the result will strengthen the definition of responsibility for stablecoin issuers by regulatory agencies and provide a precedent for subsequent DeFi area reviews. For other founders, the event may highlight the concept of "ultimate responsibility": product design flaws, even if arising from algorithms, cannot exclude legal accountability.
From an investor perspective, the Terra collapse has been viewed as a risk education template. Whether the plea change results in a lighter sentence or not, it again reminds the market to conduct due diligence and assess whether stablecoin mechanisms have sufficient transparency and collateral support before pursuing high returns.
