Cryptocurrency firm Terraform Labs files for bankruptcy

Terraform Labs, the cryptocurrency company responsible for the crash of TerraUSD and Luna tokens, has filed for bankruptcy in the United States. Back in May, the tokens experienced a significant loss of $40 billion in value, which contributed to the “cryptocrash” of 2022. Co-founder Do Kwon, who was found guilty of forging documents, is currently in jail in Montenegro and is facing charges of defrauding investors by US regulators. He also faces fraud charges in South Korea and may be extradited there. Additionally, there is an ongoing legal case against Terraform Labs in Singapore, where the company is registered.

The Luna token gained recognition in December 2021 when its value soared from $5 to a high of $116 by April 2022. Mr. Kwon, referred to as the “king” by Luna enthusiasts known as “Lunatics,” rose to prominence. However, on May 9, 2022, the token suddenly collapsed, losing 99% of its value within 48 hours. It was closely linked to TerraUSD, a stablecoin intended to stay at a value of $1, but TerraUSD’s value plummeted to around $0.02, leading to the nosedive of Luna.

The crash had a ripple effect throughout the cryptocurrency market, with investors withdrawing billions of dollars from other cryptocurrencies out of fear of a similar crash. It is estimated that approximately $400 billion was wiped off the value of cryptocurrencies like Bitcoin.

In announcing the bankruptcy filing, Terraform Labs CEO Chris Amani stated that the action is necessary to continue working towards their collective goals while resolving the outstanding legal challenges. The company confirmed that it intends to meet all financial obligations to employees and vendors during the Chapter 11 bankruptcy case and does not require additional funding to do so. A Chapter 11 bankruptcy allows Terraform Labs to continue operating.

Terraform Labs provides blockchain and other Web3-related services. The bankruptcy documents, filed in Baltimore, reveal that the company has between $100 million and $500 million in assets. Do Kwon owns 92% of the company’s shares, while his co-founder, Daniel Hyunsung Shin, owns the remaining 8%.

Do Kwon was arrested in March 2023 in Montenegro while attempting to board a plane to Dubai. In June of the same year, he was convicted of forging documents, a charge he denied, and sentenced to jail.