Crypto Quill

Terraform Labs, the Singapore-based cryptocurrency company behind the failed stablecoin TerraUSD, has filed for Chapter 11 bankruptcy protection in the United States. The move comes as the company faces multiple legal challenges in different jurisdictions, including fraud charges by the U.S. Securities and Exchange Commission (SEC).

The collapse of TerraUSD and Luna

Terraform Labs was founded in 2018 by Do Kwon and Daniel Shin, with the aim of creating a decentralized platform for stablecoins and other Web3 applications. The company launched two tokens: TerraUSD, a stablecoin that was supposed to maintain a constant value of one U.S. dollar, and Luna, a governance token that was used to stabilize TerraUSD and reward users.

The tokens gained popularity in late 2021 and early 2022, reaching a combined market capitalization of over $40 billion. However, in May 2022, the system collapsed, triggering a massive sell-off that wiped out almost all of the value of both tokens. TerraUSD plummeted to $0.02, while Luna dropped from $116 to less than $1.

The crash had a domino effect on the broader cryptocurrency market, causing a loss of about $400 billion in other tokens such as Bitcoin and Ethereum. Many investors and traders lost their savings and livelihoods, and some even committed suicide.

The legal troubles of Terraform Labs and its co-founders

The collapse of TerraUSD and Luna sparked investigations and lawsuits from regulators and investors around the world. The SEC accused Terraform Labs and its co-founders of defrauding investors by making false and misleading statements about the stability and security of their tokens. The SEC also alleged that the company violated securities laws by selling unregistered tokens and failing to disclose material information.

Do Kwon, the co-founder and former CEO of Terraform Labs, is currently in jail in Montenegro, where he was arrested in March 2023 while trying to flee to Dubai. He was found guilty of forging documents and sentenced to prison. He is also facing extradition requests from the U.S. and South Korea, where he is wanted for fraud and other charges.

Daniel Shin, the other co-founder and former president of Terraform Labs, is also facing legal action in Singapore, where the company is registered. A representative lawsuit has been filed by a group of investors who claim that they were deceived and misled by the company and its co-founders.

The future of Terraform Labs and its Web3 vision

Despite the bankruptcy filing, Terraform Labs said that it intends to continue its operations and pursue its Web3 vision. The company said that the Chapter 11 process will allow it to restructure its debts and liabilities, and resolve the pending legal issues. The company also said that it will continue to provide Web3-related services, such as blockchain development and consulting.

Terraform Labs also expressed its hope that the bankruptcy will not affect its existing customers and partners, and that it will honor its financial obligations to its employees and vendors. The company said that it does not require additional financing to do so.

The bankruptcy documents, filed in Baltimore, list Terraform Labs as having between $100 million and $500 million in assets and liabilities. They also reveal that Do Kwon owns 92% of the shares of the company, while Daniel Shin owns the remaining 8%.