Singapore-based Terraform Labs files for bankruptcy in US after $53.6 billion crypto crash
SINGAPORE – The company co-founded by Do Kwon and under probe for a US$40 billion ($$53.6 billion) cryptocurrency crash has filed for protection against bankruptcy in the United States.
Singapore-registered Terraform Labs, which is behind stablecoin TerraUSD, said on Jan 22 that it made the application in a bankruptcy court in Delaware.
The firm said the move would “enable it to continue its operations and support for the Terra community and ecosystem”.
It added that the filing would let it execute its business plan while navigating ongoing legal proceedings, including representative litigation pending in Singapore and in the US, which involves the US Securities and Exchange Commission (SEC).
Terraform Labs said it intends to meet all financial obligations to employees and vendors during the Chapter 11 case and does not require additional financing to do so. Reports said the firm had listed assets and liabilities in the range of US$100 million to US$500 million.
Mr Chris Amani, chief executive of Terraform Labs, said: “The Terra community and ecosystem have shown unprecedented resilience in the face of adversity, and this action is necessary to allow us to continue working toward our collective goals while resolving the legal challenges that remain outstanding.”
He added that the decision ensures that it is able to continue working with the community on infrastructure, innovative tools and products, and other ecosystem support.
“We have overcome significant challenges before and, against long odds, the ecosystem survived and even grew in new ways post-depeg; we look forward to the successful resolution of the outstanding legal proceedings,” Mr Amani said.
The SEC has launched a civil trial against Terraform Labs and Kwon for allegedly orchestrating a US$40 billion cryptocurrency fraud via his algorithmic stablecoin TerraUSD and sister token Luna.
A stablecoin is a digital token that usually has a valuation of US$1 and is pegged to or backed by fiat currency or other cryptocurrencies or commodities on a one-to-one basis.
In the case of TerraUSD, the stablecoin was backed by Luna, with both tied to the Terra blockchain.
TerraUSD used algorithms and trader incentives linked to Luna to maintain the dollar peg but both tokens crashed spectacularly in May 2022, wiping out more than US$40 billion of investors’ monies.
SEC alleges that from April 2018 until the scheme’s collapse in May 2022, Terraform Labs and Kwon raised billions of dollars from investors by offering and selling an interconnected suite of crypto asset securities, many in unregistered transactions.
The crash of TerraUSD and Luna triggered the fall of many crypto firms, including prominent ones such as hedge fund Three Arrows Capital, Singapore lender Hodlnaut, brokerage Voyager Digital and lender Celsius Network.
The collapse of TerraUSD and Luna eventually sparked a massive crypto winter or market sell-off that lasted much of 2023.
Kwon, a South Korean national, also faces related US criminal charges to do with fraud and market manipulation. He was arrested in Montenegro in March 2023. There is also an extradition request from his native South Korea.
