Terraform Labs, Behind TerraUSD Collapse, Gets Bankruptcy Approval

• U.S. Bankruptcy Judge approves Terraform Labs’ wind-down plan.
• Terraform lost an estimated $40 billion after TerraUSD and Luna crashed in 2022.
• Do Kwon faces SEC settlements and criminal charges in the U.S. and South Korea.

Terraform Labs, the company behind the failed TerraUSD and Luna tokens, is preparing to wind down after a U.S. court greenlit its bankruptcy plan. This decision closes a chapter on its dramatic $40 billion collapse.

During a hearing in Wilmington, Delaware, U.S. Bankruptcy Judge Brendan Shannon described the plan as a “welcome alternative” to minimize investor losses rather than engage in lengthy legal battles. The crypto firm suffered an estimated $40 billion loss in 2022 when its TerraUSD and Luna tokens crashed, leaving investors and the cryptocurrency world in shock.

From Prominence to Collapse

The blockchain firm, founded by Do Kwon and Daniel Shin, was once known for its Terra blockchain protocol and algorithmic stablecoin payment platform. However, the company’s fortunes changed drastically in May 2022 when TerraUSD, a stablecoin meant to maintain a constant $1 price, collapsed. This led to the loss of nearly $45 billion in market capitalization within a week.

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Terraform Labs filed for bankruptcy in January 2024, revealing estimated liabilities and assets between $100 million and $500 million. Chris Amani, the CEO of Terraform Labs, highlighted that the bankruptcy filing was a crucial step to address legal challenges while allowing the company to pursue its shared goals.

SEC Settlement and Legal Challenges

In addition to the bankruptcy, Terraform faced a $4.47 billion settlement with the U.S. Securities and Exchange Commission (SEC) after being found liable for defrauding investors. The SEC had accused Terraform and Kwon of misleading investors about TerraUSD’s stability and making false claims about the Terra blockchain’s widespread use in a Korean mobile payment app.

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A jury in Manhattan ruled in April that Terraform Labs and Do Kwon were liable for civil fraud. Before a damages trial, the company reached a settlement with the SEC. Kwon, who faces related criminal charges in both the United States and South Korea, has denied any wrongdoing.

The winding down of Terraform Labs signals the end of one of the most significant collapses in cryptocurrency history, as investors, regulators, and courts continue to deal with the consequences of the company’s rapid rise and fall.

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