On September 19, insolvent crypto firm Terraform Labs will undergo its Chapter 11 bankruptcy reorganisation hearing. The court’s decision will determine the company’s fate.
Determining the company’s future will be contingent upon the hearing results. Terraform has been the subject of legal disputes and financial instability since the Terra ecosystem’s abrupt collapse in 2022.
The court’s decision will either enable the company to restructure and emerge from bankruptcy or compel it to liquidate its remaining assets and cease operations utterly.
A decline in status
In May 2022, Terraform Lab’s circumstances were significantly altered when its TerraUSD (UST) stablecoin lost its peg to the United States dollar, resulting in a catastrophic collapse that resulted in billions of dollars in value.
The event resulted in a lawsuit from the US Securities and Exchange Commission in February 2023, intense scrutiny from regulators and a loss of investor confidence.
Terraform Labs initiated a protracted and intricate legal procedure by declaring bankruptcy under Chapter 11 in Delaware in January 2024. The company’s co-founder and former CEO, Do Kwon, who was at the centre of the controversy, also confronted legal action.
In July 2024, Terraform and Kwon reached a joint settlement with the SEC, which included the payment of a staggering $4.5 billion in penalties, disgorgement, and interest. This settlement effectively expelled Terraform and Kwon from the cryptocurrency industry.
Concluding operations
Terraform Labs is liquidating critical assets as it concludes its operations as part of the bankruptcy proceedings.
The company is investigating the potential sale of the portfolio monitoring platform Pulsar Finance, the crypto wallet platform Station, the no-code decentralised autonomous organisation management platform Enterprise, and the smart contract automation protocol Warp.
Terraform is currently selling these businesses, which were previously regarded as valuable assets, to raise funds to fulfil its obligations under the SEC settlement.
One of the most substantial settlements in the cryptocurrency industry’s history is the $4.5 billion agreement with the Securities and Exchange Commission. It underscores the severity of the company’s transgressions and the extensive repercussions of its collapse.
The court’s authorisation to burn a significant quantity of Terra (LUNA) tokens and the recent reopening of the Shuttle Bridge were further developments in the restructuring process.
