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Terraform Filed for Bankruptcy

Feb 13, 2024
9 min read

This blog post will cover:

  • Terraform Labs’ current financial situation
  • Do-or-die appeal
  • Do Kwon's legal status

Turmoiled blockchain company Terraform Labs which is known for such crypto assets as Luna and TerraUSD stablecoin, filed for bankruptcy on January 21, 2024. This move follows a recent ruling by the U.S. federal court, that determined law violation by the company. According to the decision, Terraform failed to properly register its digital currencies, contributing to the cryptocurrency market upheaval in 2022, known as the Terra-Luna crash.

Today, we will figure out the present status of Terraform, what caused the company’s problems, and what might happen to it in the future.

Terraform Labs’ current financial situation

Terraform Labs faces substantial challenges, with the court estimating its liabilities ranging from $100 million to $500 million. The results of the Terra-Luna collapse, which was rather shocking for the entire crypto community in May 2022, continue to affect the company.

The entity reportedly holds assets that amount to $28 million in Bitcoin, $7 million in various cryptocurrencies, and approximately $87 million in its proprietary token, Luna. Yet still, Terraform Labs is concerned that the upcoming court ruling may be larger than the assets at hand.

Do-or-die appeal

The Chapter 11 bankruptcy filing is strategically positioned to facilitate a "do-or-die" appeal in response to securities fraud charges from the U.S. Securities and Exchange Commission (SEC). This means that the success of this appeal is vital for the survival of the company. 

Terraform Labs is essentially staking its future on the outcome of this legal maneuver, emphasizing the high stakes involved in challenging the SEC's allegations and attempting to secure a favorable judgment. If the appeal fails, the company faces the prospect of significant financial consequences and potentially dire repercussions.

Terraform Labs asserts that its cryptocurrency tokens are not securities, challenging the SEC's jurisdiction. This type of appeal typically mandates posting a bond equivalent to 110% of the total judgment value. However, Terraform Labs anticipates that the Chapter 11 bankruptcy protection will exempt them from this requirement, enabling them to proceed without immediate liquidation.

The bankruptcy filing designates the U.S. Securities and Exchange Commission as a creditor, reflecting the ongoing legal dispute involving accusations of unregistered securities offering to American citizens.

Do Kwon's legal status

The legal troubles faced by the company’s founder Do Kwon further complicate Terraform's situation, with authorities in South Korea and the United States pursuing his extradition on charges linked to the collapse of the Terra network and accusations of fraud. 

Currently held in Montenegro after being arrested in March 2023, Kwon's reported use of a fake passport raises additional legal complexities. His lawyer suggests extradition to the U.S. may occur by March 2024. Kwon is now facing a series of charges, including commodities fraud, securities fraud, wire fraud, and conspiracy to defraud and engage in market manipulation, filed by U.S. prosecutors in New York.

Despite the financial turmoil and legal battles, Terraform Labs expresses determination to continue developing tools and applications for the new Terra blockchain. Focusing on products like the crypto wallet "Station," the company actively encourages third-party development on its blockchain. As Terraform navigates the aftermath of the crypto winter of 2022, it remains committed to carving out a renewed future amid ongoing challenges.

SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility.

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