Do Kwon is set to face sentencing in U.S. federal court on December 11, 2025. Prosecutors are advocating for a 12-year prison sentence, while the defense is arguing for a maximum of five years. Judge Paul A. Engelmayer will oversee the proceedings, with additional charges still pending in South Korea.
This legal action follows a June 2024 final judgment in the SEC’s civil case, which resulted in approximately $4.47 billion in disgorgement and penalties against both Terraform and Kwon, along with a lifetime ban from U.S. crypto and securities markets.
The implications of the criminal hearing extend beyond courtroom dramatics, as they will likely influence the policies of exchanges, insurers, and regulatory filings. Should the case highlight misstatements regarding algorithmic stability and undisclosed support for the peg, it could lead to a new norm where claims related to market mechanisms are treated similarly to traditional securities fraud within listing and coverage committees.
The insurance sector is the initial checkpoint for behavioral changes
Since the early 2020s, the underwriting of directors and officers has become increasingly stringent. Although recent trends suggest a softening, experts warn that such leniency may not last as the severity of claims rises.
Insurers and brokers are informing their clients that growing clarity in regulatory expectations simplifies risk selection, allowing more well-governed crypto firms to receive coverage, while speculative operations may face increased exclusions and retention requirements, according to Woodruff Sawyer.
If the sentence aligns with the government’s request and judicial observations reveal deceptive practices regarding mechanism recovery, it could lead the 2026 renewal phase to explicitly exclude algorithmic-stability in directors and officers (D&O) insurance and cyber endorsements, alongside larger self-insured retentions for issuers depending on endogenous pegs or cross-market maker support.
A more favorable ruling, framing the misconduct as mere overconfidence, could still influence pricing but is likely to yield customized warranties concerning mechanisms instead of broad exclusions.
Exchanges will adapt their risk assessments into listing criteria
The European Union’s MiCA regulations, which will commence implementation in 2025, have already prompted significant delistings and restrictions for non-licensed stablecoins within the EEA, encouraging exchanges to direct their focus towards licensed e-money tokens and asset-referenced token issuers. This is evident in actions taken by various EU venues, as reported in EU venue actions.
MiCA’s introduction is also enhancing a shift towards euro-denominated liquidity and improved transparency regarding reserves.
In Hong Kong, regulators are broadening their approach, permitting mechanisms like order-book sharing and staking under rigorous regulations, signaling a competitive compliance landscape. This change means that disclosing both on-chain mechanisms and off-chain dependencies is becoming a crucial part of maintaining market entry.
In the U.S., SEC CorpFin officials in 2025 are advocating for detailed disclosures that encompass mechanism-level risks related to crypto offerings and exchange-traded products (ETPs), covering aspects like valuation, liquidity, technology, legal exposure, and governance, as stated by Debevoise.
A sentencing rationale stressing misrepresentations regarding stability will incentivize reviewers to request more detailed information about peg mechanics, the participation of liquidity providers, and the conditions under which mechanisms might fail.
Consequently, listing committees will standardize thorough verification tests for mechanisms and enforce adequate documentation for contingency plans. Such committees will likely require attestations outlining how stability is maintained, detailing any reliance on centralized market makers or credit facilities, and modeling behavior under liquidity crisis scenarios.
Committees can further institutionalize delisting triggers linked to oracle failures or reserve transparency issues and may adopt MiCA-like whitepaper standards even in non-EU locations to facilitate cross-border operations later on, utilizing ESMA’s machine-readable taxonomy as a reference guide.
On the issuer’s side, whitepapers and public disclosures addressing essential contracts and controls will be more effective than vague narratives.
This entails naming market-making contracts, disclosing contingency arrangements, illustrating board oversight on liquidity defenses, and aligning risk factors with the SEC’s 2025 call for specific, detailed mechanism risks.
ESMA’s MiCA whitepaper reporting manual is poised to encourage inline XBRL formatting and validation rules, enabling programmatic checks by both investors and media and making ambiguous edits or imprecise updates to mechanisms more easily detectable.
Insurers will also formalize this investigative diligence within their underwriting inquiries, likely demanding access to board minutes associated with peg defense strategies and incident responses, clarifying the scope and frequency of proof-of-reserve assessments, and reviewing event models detailing scenarios of cross-venue depegs and sudden liquidity shortages.
Moreover, timing for claims-made coverage and restitution subrogation will gain emphasis if regulators impose penalties or coordinate recoveries during bankruptcy proceedings, as previously highlighted in the SEC case.
The overarching outcome from these developments is that access to capacity becomes a critical determining factor: issuers who can satisfactorily complete D&O questionnaires will be the only contenders for listings on risk-averse exchanges in 2026.
Liquidity will adapt to regulatory frameworks.
Within the EU, if constraints surrounding USDT continue while licensed EMT and ART pairs grow, EU spot trading volumes will progressively shift toward regulated pairs and euro-stablecoins, as evidenced by actions from exchanges like Kraken.
A December 2025 study noted that the market cap for euro-stablecoins approximately doubled year-on-year post-MiCA, signifying a trend of liquidity being driven by regulatory changes.
Retail access paradigms are beginning to converge across regions. Hong Kong’s initiative for retail engagement through licensed platforms—emphasizing suitability assessments and knowledge tests, alongside staking and derivatives under strict guidance—represent a model regulators could implement throughout the Asia-Pacific in 2026, as outlined by the Securities and Futures Commission.
In the U.S., the focus of disclosures is shifting from generalized risks to mechanism-specific risks, which influences how broker-dealers and advisors perceive suitability and how exchanges formulate product-level disclosures. The cultural shift signifies a move away from code as mere protection, transitioning towards mechanism claims that are subject to audit, insurance, and potential prosecution if found deceptive.
The legal framework that evolves from this sentencing, alongside the SEC’s civil orders, establishes a dual-track deterrent system. The civil approach can dismantle business models via disgorgement and injunctive measures, as illustrated by the SEC’s 2024 action and subsequent lifetime bans.
Conversely, the criminal dimension can result in incarceration and affect perceptions of future intent.
This combination compels proactive measures. Listing committees may reject unconventional projects lacking third-party verification of stability.
Underwriters will either assess the risk with exclusions and high retention levels or opt out, a decision likely to precede any regulatory mandate. The reputational risk for self-stabilizing token economies that lack independent validation increases as the narrative shifts from a simple experimental failure to one of alleged misinformation regarding market support, framed within the context of traditional market manipulation, as discussed by Reuters.
Upcoming phases entail specific measuring points.
The court’s language on December 11, 2025, particularly regarding algorithmic stability claims, undisclosed support from market makers, and victim impacts, will be referenced in underwriting notes and listing documents.
The 2026 renewal period will provide insight into how exclusion language and retention frameworks evolve for issuers employing peg-like mechanics. Updates to the MiCA taxonomy by ESMA and validation checks in 2025 and 2026 will shape how machine-readable whitepapers progress, informing investor and media monitoring of modifications to mechanism languages.
Simultaneously, the effective implementation of the GENIUS Act will determine whether U.S. disclosures align with MiCA standards, either through regulatory compulsion or market liberalization.
To illustrate the potential shifts in behavior that committees and insurers are preparing for, the underwriting flexibility in response to sentencing outcomes can be summarized in two scenarios.
The base case scenario, involving an 8 to 12-year sentence, corresponds to approximately 10–20% rate increases for unprofitable crypto issuers during the 2026 renewals, with retentions rising 25–50% for those employing peg-like mechanics and more frequent algorithmic-risk exclusions becoming standard. This is informed by an understanding of an unsustainably lenient phase and insights from brokers regarding market differentiation.
In contrast, a more lenient outcome of five years or less would suggest single-digit premium rises, with an inclination towards specific warranties and attestations as opposed to broad exclusions. For liquidity, the European market could increasingly favor EMT and ART pairs if restrictions on unauthorized stablecoins continue at least into the first half of 2026. Additionally, euro-stablecoin market share may rise further should MiCA enforcement practices remain consistent.
One remaining caution pertains to custody considerations. Time served regarding proceedings in Montenegro or South Korea could influence the effective sentencing and transfer of responsibilities, as coverage considerations will be affected by the judge’s intent to ensure any potential sentence is genuinely served.
These nuances don’t alter the anticipated actions of private regulatory gatekeepers. Listings will demand issuers demonstrate the mechanics of stability and realistic failure scenarios, insurers will expect boards to validate such modeling, and disclosures will enforce precise specificity that transforms marketing claims into verifyable assertions.
| Scenario | Sentencing Range | D&O Rate Impact (2026) | Retention Impact | Coverage Terms |
|---|---|---|---|---|
| Base case | 8–12 years | +10–20% | +25–50% for peg-like issuers | Increased algorithmic-risk exclusions |
| Lenient case | ≤5 years | Single-digit | Modest increases | Bespoke warranties on mechanisms |
