Terraform Labs Declares Bankruptcy Amid Legal Troubles and the Expected Next Bull Run!

Terra Luna founder Do Kwon wanted for trial in the US
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Terraform Labs, the crypto company behind the infamous Terra-Luna stablecoin scheme, filed for bankruptcy in the U.S. This development follows the dramatic collapse of the scheme in May 2023, leading to a loss of $40 billion in value of the crypto sector. The Terra-Luna collapse ended the 2020 crypto hype and triggered a wave of bankruptcies, including Three Arrows Capital (3AC), Celsius, Voyager Digital, and FTX.

The Terraform Labs Story

Terraform Labs experienced a meteoric rise with its Luna token, which soared from $5 to a peak of $116 in April 2022. However, the token’s value plummeted by 99% within 48 hours on May 9, 2022. This collapse was intricately linked to its sister coin, TerraUSD, a stablecoin that was supposed to maintain a value of $1 but fell to around $0.02. The resulting crash sent shockwaves through the cryptocurrency market, prompting investors to withdraw billions from other digital currencies, including Bitcoin.

Chris Amani, Terraform Labs‘ CEO, announced the bankruptcy filing, citing it as a necessary step to address ongoing legal challenges and continue pursuing the company’s goals. Despite the bankruptcy, the company affirmed its intention to fulfill all financial obligations to employees and vendors during the Chapter 11 process, without the need for additional financing.

A Chapter 11 bankruptcy allows Terraform Labs to maintain its operations. According to a Reuters report, Terraform Labs said it would meet all financial obligations to employees and vendors during the Chapter 11 case without requiring additional financing. It also plans to continue Web3 offerings expansion. The company, known for its blockchain and Web3-related services, filed its bankruptcy documents in Baltimore, revealing assets between $100 million and $500 million.

Legal Troubles for Co-Founder Do Kwon

Read our reports on Terraform co-founder Do-Kwon here.

Co-founder Do Kwon, a central figure in this saga, is currently incarcerated in Montenegro following his conviction for document forgery. Additionally, Kwon faces charges in the US for defrauding investors and awaits potential extradition. His native country, South Korea, has also leveled fraud charges against him, and a separate legal battle is underway in Singapore, where Terraform Labs is registered.

Do Kwon holds a 92% share in the now-bankrupt Terraform Labs, with the remaining 8% owned by co-founder Daniel Hyunsung Shin.

Kwon’s legal troubles escalated when he was arrested in Montenegro in March 2023 while attempting to fly to Dubai. He was later found guilty of forging documents, a claim he denies, and sentenced to jail. Terraform Labs‘ former finance officer, Han Chang-joon, also received a prison sentence for similar charges. Authorities reportedly discovered altered passports in their possession. In November 2023, a Montenegrin court approved Kwon’s extradition, though it remains undecided whether he will be sent to South Korea or the U.S.

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