Luna crash mastermind Do Kwon to be sentenced this week! U.S. seeks 12-year sentence, $4 billion evaporated

U.S. federal prosecutors have formally submitted a sentencing recommendation to the Southern District Court of New York, requesting that Terraform Labs co-founder Do Kwon be sentenced to 12 years in prison and forfeit his criminal proceeds. The rationale is that his actions led to the instant evaporation of nearly $40 billion in market value, and triggered global market contagion in 2022. The sentencing is set for December 11.

Prosecution Seeks 12-Year Sentence: Luna Crash More Devastating Than FTX

(Source: CourtListener)

In their sentencing memo, U.S. federal prosecutors clearly state that the scale and severity of Do Kwon’s crimes far exceed other major cryptocurrency fraud cases. The prosecution drew a striking comparison: Terra’s losses surpassed the combined total of FTX, Celsius, and OneCoin. This characterization elevates the Luna crash to one of the most severe financial crimes in crypto history.

Do Kwon had already pleaded guilty earlier this year to charges including conspiracy to commit fraud, securities fraud, and wire fraud. While the theoretical maximum sentence could reach 25 years, the plea agreement with prosecutors capped his sentence at 12 years, and the prosecution is seeking the maximum to reflect the scale and impact of his crimes on the global financial market. Prosecutors emphasized that Do Kwon not only misled investors before the collapse, but also tried to downplay his responsibility after the crash, even shifting blame during overseas interviews.

The defense, meanwhile, is seeking leniency, proposing a 5-year sentence and noting that Do Kwon has already served nearly 3 years in Montenegro and will face up to 40 years of potential imprisonment upon his return to South Korea. The defense team has tried to portray Do Kwon as a technological idealist rather than a malicious fraudster, but this argument appears weak in light of the substantial evidence presented by prosecutors.

Under the plea agreement, Do Kwon must forfeit over $19 million in assets. However, U.S. prosecutors will not seek restitution for global victims, meaning most Luna investors will not receive any compensation through U.S. legal channels. For those who lost their life savings in the crash, this outcome is a second blow.

Luna Crash Timeline: The Fatal Flaw of Algorithmic Stablecoins

The collapse of the Terra ecosystem occurred in May 2022, with the “death spiral” wiping out over $50 billion in market value within days. UST was originally maintained as a dollar peg through an algorithmic mechanism, not relying on real-world assets like Treasuries, but instead adjusting prices via the minting and burning of $LUNA . This structure failed completely under market stress, causing a run on redemptions and ultimately triggering a chain liquidation.

The Luna Crash Death Spiral Mechanism

Depegging Triggers Panic: After UST fell below $1, holders rushed to redeem, forcing the system to mint large amounts of $LUNA to maintain the peg

LUNA Hyperinflation and Price Collapse: In just a few days, $LUNA supply soared from hundreds of millions to trillions, with the price plunging from $80 to nearly zero

Total Loss of Confidence: Investors realized the system could not fulfill its promises, both tokens went to zero, and no one escaped unscathed

Cascade Liquidations: Lending protocols using $LUNA or UST as collateral triggered massive liquidations, impacting the entire market

This event not only shattered global investor confidence, but also put liquidity pressure on lending platforms, exchanges, and funds. Well-known institutions like Three Arrows Capital and Celsius Network collapsed due to heavy exposure to Luna ecosystem assets. This wave of bankruptcies became known as the “crypto contagion chain.” The impact of the Luna crash has cemented its status as one of the most defining events in crypto history.

Prosecutors found during their investigation that Do Kwon was aware of the system’s fragility before the collapse, yet continued to assure investors of its stability and maintained a façade of prosperity through covert transactions and falsified data. This willful misconduct is a key reason for the prosecution’s call for a harsh sentence.

LUNC Community Rebuilding Efforts and Extreme Market Volatility

On the eve of the sentencing hearing, the price of the relaunched LUNC (Terra Classic) experienced extreme volatility. According to CoinGecko data, LUNC fell over 21.4% in the past 24 hours, but saw a weekly gain of more than 102.9%. Market analysts believe some traders are betting that the verdict will bring legal and governance clarity to the Terra ecosystem, driving short-term speculative sentiment.

Large-scale LUNC burn events have become a major technical factor fueling price action. In the past week alone, over 849 million LUNC were burned, with more than 959 million burned in December. Binance continues to play a key role, using half of LUNC’s trading fees for burns, with a cumulative burn of about 75.89 billion tokens to date. Although this is still limited compared to the roughly 5.49 trillion circulating supply, it has provided some morale boost to the community.

Meanwhile, Terra Chain is scheduled for a v2.18 upgrade on December 8, aimed at fixing cross-chain interoperability issues and improving network stability. Binance has temporarily suspended LUNC withdrawals in response, increasing market attention on the technical update. However, most analysts believe LUNC’s price swings are driven mainly by speculative sentiment rather than fundamental improvement. Trust in the Luna ecosystem has been completely shattered; the road to recovery will be long and uncertain.

Do Kwon’s International Manhunt and Multi-Jurisdictional Legal Risks

Do Kwon’s international flight added more drama to the case. In 2023, he was arrested in Montenegro for attempting to travel to Dubai on a fake passport, after which both the U.S. and South Korea requested extradition. After nearly two years of legal proceedings, he was transferred to the U.S. in 2025 and faced criminal charges in Manhattan. This international pursuit demonstrates regulators’ zero-tolerance stance on crypto crimes.

His legal troubles won’t end with the U.S. verdict. South Korea is still conducting criminal investigations for fraud and violations of capital market laws and may request his repatriation to serve prison time there. The defense team states that even after serving a U.S. sentence, he will be sent directly to an immigration detention center, awaiting deportation and subsequent imprisonment upon return. This means Do Kwon could face a cumulative sentence of 12 years in the U.S. and 40 years in South Korea, effectively spending the rest of his life behind bars.

The outcome of this case not only determines Do Kwon’s fate, but also marks a major turning point in the crypto industry’s journey toward legal compliance. As the December 11 sentencing approaches, global markets and regulators are closely watching how this case will reshape governance standards in crypto finance. The lesson from the Luna crash reminds all investors: in the cryptocurrency market, no mechanism can guarantee stability—only strict regulation and transparent governance can protect investor interests.