The cryptocurrency firm associated with the collapsed TerraUSD and Luna tokens has officially initiated bankruptcy proceedings in the United States. The downfall of Terraform Labs’ tokens in May resulted in a staggering $40 billion loss, significantly contributing to the widely recognized “cryptocrash” of 2022.
The co-founder, Do Kwon, presently incarcerated in Montenegro, faced legal consequences for document forgery, leading to charges of defrauding investors according to US regulators, and is presently awaiting extradition. Additionally, he confronts fraud allegations in his home country, South Korea, thereby facing the possibility of extradition to multiple jurisdictions. Concurrently, a third legal case is in progress in Singapore, where the company is formally registered.
Terraform Labs’ Luna token gained prominence in December 2021, witnessing a meteoric rise from $5 to a peak of $116 in April 2022. Enthusiasts of Luna, affectionately known as “Lunatics,” passionately regarded Mr. Kwon as their “king.” However, the sudden collapse on May 9, 2022, resulted in a 99% depreciation of its value within a mere 48 hours. The Luna token’s fate was intrinsically tied to its counterpart, TerraUSD, a stablecoin designed to maintain a constant value of $1. The drastic plunge of TerraUSD to approximately $0.02 triggered a cascading effect, causing Luna’s precipitous decline.
The fallout from this crypto calamity reverberated across the market, inducing investors to withdraw billions from alternative cryptocurrencies amid fears of a similar catastrophe. The estimated loss across the cryptocurrency landscape, including major currencies like Bitcoin, reached an astronomical $400 billion.
In the wake of these events, Terraform Labs CEO Chris Amani announced the decision to file for bankruptcy, emphasizing its necessity to pursue collective goals while addressing outstanding legal challenges. The company affirmed its commitment to meeting all financial obligations to employees and vendors during the Chapter 11 proceedings, without requiring additional financing.
Under Chapter 11 bankruptcy, Terraform Labs retains the ability to conduct business operations. The firm, specializing in blockchain and other Web3-related services, declared assets ranging from $100 million to $500 million in the submitted bankruptcy documents. Ownership distribution indicates that Do Kwon possesses 92% of the company’s shares, with the remaining 8% owned by co-founder Daniel Hyunsung Shin.
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The dramatic turn of events also involved Mr. Kwon’s arrest in Montenegro in March 2023, attempting to board a plane to Dubai. Subsequently, he was convicted of document forgery three months later, leading to imprisonment. Former finance officer Han Chang-joon, implicated in similar charges, also received a prison sentence. Notably, the discovery of altered Costa Rican passports and a separate set of Belgian passports in their possession by law enforcement further complicated the legal proceedings.
In November 2023, a Montenegro court approved Mr. Kwon’s extradition, pending a decision on whether it would be to South Korea or the United States.
Subhadra, a seasoned research analyst, specializes in distilling complex developments in blockchain and AI into insightful narratives. Her expertise lies in providing a nuanced understanding of emerging technologies, making her a trusted source for in-depth and up-to-date analysis at the intersection of blockchain and AI.
