Do Kwon, the controversial founder behind the collapse of TerraUSD and Luna, is set to be extradited to the United States. Montenegro’s Minister of Justice, Bojan Božović, signed the order, prioritizing the U.S. request over South Korea’s.
This decision follows the confirmation from Montenegro’s Supreme Court that all necessary legal conditions for extradition were met.
The rise and fall of terraUSD and Luna
Kwon’s TerraUSD and Luna projects were once hailed as revolutionary in cryptocurrency. TerraUSD, a stablecoin, promised a 1:1 peg to the U.S. dollar but lacked the typical backing of physical assets. Instead, it relied on a connection with Luna, another cryptocurrency created by Kwon’s Terraform Labs. The system was designed to allow TerraUSD to be redeemed for $1 worth of Luna, maintaining its value through a self-created balance.
The Anchor Protocol, offering 20% annual returns, attracted a massive influx of investors. However, the scheme collapsed in May 2022. TerraUSD’s value dropped below $1, prompting panic among investors. Terraform Labs attempted to stabilize the situation by flooding the market with Luna, but this only caused the token’s value to plummet. Once worth over $100, Luna quickly became worthless, taking down billions in Bitcoin reserves and sparking a broader collapse in the cryptocurrency market.
Legal pursuit and arrest
The magnitude of the crash drew the attention of regulators in the U.S. and South Korea. Both countries accused Kwon of misleading investors and concealing wealth. In September 2022, South Korea issued an arrest warrant, followed by a red notice from Interpol after Kwon went into hiding. Kwon’s fugitive status ended in March 2023 when he was arrested in Montenegro with forged documents, attempting to board a private jet to Dubai.
After spending several months in a Montenegrin prison for document forgery, Kwon was transferred to a foreign reception center to await extradition. Both the U.S. and South Korea requested his extradition. In February, Montenegro sent Terraform Labs’ former CFO, Han Chang-joon, back to South Korea, though Kwon’s fate has now been sealed with the decision to send him to the U.S.
Terraform labs’ legal response
Despite the mounting legal pressure, Terraform Labs has dismissed the charges as politically motivated. The company claims that Luna does not qualify as a security under South Korean law, calling the accusations unfounded. However, these arguments have had little weight in light of the $40 billion loss suffered by investors. As Kwon faces legal challenges in the U.S., his case remains significant in the ongoing regulation of cryptocurrencies.