Terraform Labs, the company behind the notorious Terra-Luna stablecoin debacle, has declared bankruptcy in the United States. This move comes in the aftermath of the scheme’s collapse in May 2023, which erased $40 billion from the crypto market and marked the end of the 2020 crypto boom. The fallout of Terra-Luna not only devastated its own value but also triggered a domino effect leading to the bankruptcy of several major crypto entities, including Three Arrows Capital (3AC), Celsius, Voyager Digital, and FTX.
The Rise and Fall of Terraform Labs
Terraform Labs initially gained prominence with its Luna token, which surged from $5 to an all-time high of $116 in April 2022. This success was short-lived, as the token’s value nosedived by 99% within just 48 hours in May 2022. The crash was closely tied to TerraUSD, its sister stablecoin, which plummeted from its intended $1 peg to approximately $0.02. This collapse sent ripples through the crypto market, leading to a significant withdrawal of investment from other cryptocurrencies.
Terraform Labs’ Bankruptcy Filing
CEO Chris Amani announced the bankruptcy filing as a strategic move to navigate through the legal complexities facing the company while continuing to pursue its objectives. The Chapter 11 bankruptcy filing enables Terraform Labs to continue operations and meet its financial obligations to employees and vendors without additional financing. The company, known for blockchain and Web3 services, reported assets between $100 million and $500 million in its bankruptcy documents filed in Baltimore.
Do Kwon’s Legal Battles
Compounding the company’s challenges are the legal issues surrounding co-founder Do Kwon. Currently detained in Montenegro after being convicted of document forgery, Kwon is also facing charges in the US for investor fraud and potential extradition. Additionally, fraud charges have been leveled against him in South Korea, with another legal case in progress in Singapore, where Terraform Labs is registered.
Kwon owns a 92% stake in Terraform Labs, with the rest held by co-founder Daniel Hyunsung Shin. The U.S. Securities and Exchange Commission (SEC) has accused Terraform Labs and Kwon of conducting a multi-billion dollar crypto asset securities fraud involving their algorithmic stablecoin and other crypto assets. The SEC’s complaint further alleges that Kwon and the company consistently misled investors while marketing the LUNA token.
In March 2023, Kwon’s legal situation worsened when he was arrested in Montenegro during an attempted flight to Dubai. Despite denying the charges, he was found guilty of forging documents and sentenced to imprisonment. Similarly, Terraform Labs‘ former finance officer, Han Chang-joon, was sentenced for related offenses. Notably, authorities found doctored passports in their possession. A Montenegrin court has since approved Kwon’s extradition, though it is yet to be decided whether he will be sent to South Korea or the United States.
