Key Insights
- Terraform Labs has filed for Chapter 11 bankruptcy with liabilities of up to $500 million.
- Move seen allowing company to push revival plan amid lawsuits tied to collapse erasing billions.
- Recent ruling found TerraUSD and sister Luna tokens as unregistered securities.
Singapore – Cryptocurrency firm Terraform Labs, creator of failed stablecoin TerraUSD, has filed for Chapter 11 bankruptcy protection in Delaware, according to court documents dated Jan. 21.
The company, founded by South Korean entrepreneur Do Kwon, stated assets and liabilities of between $100 million to $500 million in its voluntary petition.
Terraform Labs said bankruptcy would enable executing its revival plan while navigating lawsuits tied to the spectacular collapse of its signature dollar-pegged token TerraUSD and sister coin Luna last May, which wiped out tens of billions of dollars.
Creditors listed in documents include U.S. digital asset investors TQ Ventures and Standard Crypto, both left exposed by the sudden unwinding of what had been the world’s third-biggest stablecoin project at its peak.
Kwon currently faces charges in South Korea linked to the meltdown. He and Terraform Labs must also contend with a prospective class action from Singapore, in addition to fraud allegations from the U.S. Securities and Exchange Commission over TerraUSD marketing.
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A December ruling in a separate investor lawsuit found both TerraUSD and Luna counted as unregistered securities at issuance based on how they were represented and sold.
That defeat for Terraform may influence ongoing proceedings, as prosecutors build their case that lax oversight and brazen stability pledges by founder Kwon fueled massive over-investment then blindsided retail traders.
Both Kwon and his company deny criminal liability over ecosystem design criticisms, with the entrepreneur dismissing liquidation demands as unrelated to development operations.
But the wide-ranging legal threats facing Terra lead analysts to doubt its recovery prospects without sweeping reforms. The protracted turmoil serves as a cautionary tale for booming crypto finance.