Bankrupt crypto firm Terraform Labs faces its Chapter 11 bankruptcy reorganization hearing on Sept. 19.
The outcome of the hearing will play a crucial role in determining the company’s future. Terraform has been embroiled in legal battles and financial turmoil since the dramatic collapse of the Terra ecosystem in 2022.
The court’s decision will determine whether the company can restructure and emerge from bankruptcy or be forced to liquidate its remaining assets and cease operations entirely.
A fall from grace
Terraform Lab’s fortunes took a sharp turn when its TerraUSD (UST) stablecoin lost its peg to the United States dollar in May 2022, triggering a catastrophic collapse that wiped out billions of dollars in value.
The event not only led to a loss of investor confidence but also attracted intense scrutiny from regulators, culminating in a lawsuit from the US Securities and Exchange Commission in February 2023.
Source: Terra Powered by LUNA
In January 2024, Terraform Labs filed for Chapter 11 bankruptcy in the US state of Delaware, marking the beginning of a long and complex legal process. The company’s co-founder and former CEO, Do Kwon, who had been at the center of the controversy, also faced legal action.
In a joint settlement with the SEC announced in July 2024, Terraform and Kwon agreed to pay a staggering $4.5 billion in penalties, disgorgement and interest. This settlement effectively banned Kwon and Terraform from the crypto industry.
Winding down operations
As part of the bankruptcy proceedings, Terraform Labs is now seeking to sell key assets as it winds down its operations.
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The company is actively exploring the sale of the portfolio tracking platform Pulsar Finance, the crypto wallet platform Station, the no-code decentralized autonomous organization management platform Enterprise, and the smart contract automation protocol Warp.
These businesses, once considered valuable assets, are now being sold as Terraform attempts to raise funds to meet its obligations under the SEC settlement.
The $4.5 billion settlement with the SEC is one of the largest in the cryptocurrency industry’s history. It highlights the severity of the company’s transgressions and the far-reaching consequences of its collapse.
The recent reopening of the Shuttle Bridge and the burning of a substantial amount of Terra (LUNA) tokens, as authorized by the court, was another step in the restructuring process.
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