Do Kwon, co-founder of Terraform Labs, entered a not-guilty plea in a Montenegrin court on May 11. Kwon was accused of utilizing forgeries of Belgian and Costa Rican passports.
The prosecution has opposed Kwon’s release on bail because of his high net worth, notwithstanding Kwon’s attorney’s request for 400,000 euros. The U.S. asked for Kwon’s extradition, as has South Korea, but a court in Montenegro will decide.
Kwon and Terraform Labs allegedly committed fraud by giving false promises that their crypto tokens’ value would rise, before the demise of TerraUSD stablecoin, leading to billions worth of losses. The Luna governance token, linked with the stablecoin and leveraged market incentives via algorithms to maintain a stable price, similarly declined in value.
The Terra company founder had been on the run until being apprehended in March. Kwon is accused of conspiring with the former CFO of Terraform Labs, Han Chang-Joon, to commit fraud.
Where do we go from Terra?
Legal problems and allegations relating to TerraUSD have cast doubt on the future of Terraform Labs and its co-founders. Under Montenegrin law, Kwon faces up to five years in jail if he is proven guilty of using counterfeit passports.
Algorithmic stablecoins, which use market incentives and algorithms to maintain a stable price, have come under scrutiny after the collapse of TerraUSD. Consequently, authorities have been increasing their scrutiny of stablecoins and placing new rules on the industry.
The lawsuit against Kwon and Terraform Labs emphasizes caution when dealing with cryptocurrency investments. Such collapses have caused panic in the crypto space which led to huge market declines, hence unveiling the need to better scrutinize the sector for legitimacy.