Terraform Labs Files for Chapter 11 Bankruptcy
Terraform Labs, the company behind the Luna cryptocurrency and TerraUSD stablecoin, has filed for Chapter 11 bankruptcy in the United States following the collapse of the TerraUSD and Luna crypto assets.
Background on Terraform Labs and Its Assets
Terraform Labs is the company behind the Luna and TerraUSD crypto assets, which both collapsed in spectacular fashion back in May 2022. The Luna crypto asset was used as part of the stability mechanism for the TerraUSD stablecoin, which was intended to operate on an algorithmic basis.
Market Turmoil and Unsustainability
While the Terra ecosystem had plenty of notable proponents, such as Galaxy Investment Partners CEO Michael Novogratz, the system proved to be unsustainable in a time of heavy downward pressure on the crypto markets. The collapse of the Terra blockchain ecosystem preceded the failure of a number of crypto institutions such as BlockFi and Celsius, which are still going through bankruptcy proceedings.
Legal Issues and Extradition
Terraform co-founder Do Kwon is wanted by authorities in South Korea and the United States for his role in the collapse of the Terra crypto network and allegations of fraud and other offenses. Bloomberg reported Kwon is currently being held in Montenegro, where he was found traveling with a fake passport. According to Kwon’s lawyer, the Terraform co-founder may be extradited to the U.S. by March.
SEC Charges and Creditors
Terraform and Kwon are also facing charges from the U.S. Securities and Exchange Commission (SEC) for allegedly making an unregistered securities offering to American citizens. Due to this ongoing litigation, the SEC is listed as a creditor in Terraform’s bankruptcy filing. Other creditors include web security and performance company Cloudflare and venture capital firm TQ Ventures.
Financial Overview
According to court documents, Terraform’s estimated number of creditors is between 100 and 199. Additionally, the assets and liabilities sides of the company’s accounting books are both estimated to be between $100 million and $500 million.