Do Kwon, founder of the Terra (Luna-Ust) ecosystem that collapsed in May 2022, has pleaded guilty to fraud. Do Kwon will be sentenced to 12 years in prison, with a reduced sentence of 25 years. The trial revolved around the first depeg of Ust (2021), which occurred one year before the crash (May 2022). According to the Foundation, Ust automatically re-pegged itself, but in reality, a market maker manually re-pegged it.

FALSE TRANSACTIONS AND STAKING INCOME GENERATION
Before the launch (May 2019), Kwon was concerned about having to generate transaction fees for Luna stakers.
He devised a temporary scheme to falsify transactions on the Terra blockchain to make it appear as if there was more activity and, consequently, higher staking returns. Kwon and other co-founders decided to "simulate fake transactions" on the Terra blockchain to generate these returns, funding them with Genesis Stablecoins (coins created at the beginning of the network). The co-founder responded that "a story" would be needed to justify the origin of these fake transactions. Kwon stated that "it's possible to simply create fake transactions that look real".

DO KWON'S FALSEHOODS AND CONFESSIONS
-Kwon stated that Ust would maintain its value at $1 autonomously thanks to an algorithm.

-In reality, after the May 2021 depeg (Ust at $0.92), the restoration of the peg to $1 occurred only thanks to an agreement with a market maker who engaged in high-frequency trading ("Trading Firm"), buying millions of Ust to artificially support its value.

-Kwon controlled both LFG (Luna Foundation Guard) and Terraform, using them as interchangeable entities and transferring funds without official authorization.

MIRROR PROTOCOL
-Kwon claimed that Mirror (a synthetic asset platform that tracked stock prices) was decentralized and that Terraform did not control it.

-In reality, Terraform secretly operated it, manipulating prices through bots using stablecoins.

-He inflated usage metrics (transactions and volumes) to simulate high activity.

-He used a process to make it appear that Mirror was automatically tracking stock prices, when in reality they were fake replicas manipulated with stablecoins minted at Genesis. In fact, during the first blocks of the Terra blockchain, Kwon received approximately 1 billion "Genesis" stablecoins. He used them to execute fake transactions on the chain and manipulate the prices of synthetic assets on Mirror.

TRADING FIRM AGREEMENT AND FUNDS LAUNDERING
-After the first depeg (May 2021), Kwon entered into a private agreement with market maker Jump: the latter bought tens of millions of Ust and Luna to bring Ust back to $1. In exchange, Kwon promised accelerated Luna unlocks.

-Luna Foundation Guard funds were not under a multisig governance, but were directly controlled by Kwon.

-When Terra collapsed, Do Kwon laundered the remaining assets by transferring approximately 2,399 BTC (≈ $30 million) from an OKX account and 1,353 BTC (≈ $27 million) from a KuCoin account.

FAKE AUDIT
-Kwon released an "Audit Report" (Nov 2022) from an external firm to demonstrate transparency in defending the Ust peg (May 2022). In reality, it served to cover his own actions and attract new investors.

-The report was misleading and also publicized on social media.

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