Terraform Labs, the company behind the LUNA token, filed for bankruptcy protection under Chapter 11 in the US, as reported by Reuters.
The move comes ahead of the SEC’s trial against Terraform Labs and its co-founder, Do Kwon. The case is ongoing, and given the losses, could end in major jail time.
According to a court filing with Delaware Court dated January 21, Terraform Labs possesses assets and liabilities within the range of $100 to $500 million.
The company assures the fulfillment of all financial obligations to both employees and vendors throughout the bankruptcy proceedings. Furthermore, it affirms its commitment to sustaining the growth of Web3 offerings as an integral part of its strategic plans.
“The filing will allow TFL to execute on its business plan while navigating ongoing legal proceedings, including representative litigation pending in Singapore and U.S. litigation involving the Securities and Exchange Commission (SEC),” stated Terraform Labs.
More Legal Trouble In The USA
The move comes amid a legal battle between Terraform Labs and the Securities Exchange and Commission (SEC). Earlier last year, the SEC accused the company and its co-founder Do Kwon of conducting unregistered securities and “orchestrating a multi-billion-dollar crypto asset securities fraud.”
In December last year, the court ruled in favor of the SEC, asserting that LUNA and UST are securities. This led to allegations that Terraform Labs violated US law by offering these coins to investors without SEC approval.
The planned trial has been postponed to March, awaiting the participation of detained co-founder Do Kwon. Besides the SEC, Do Kwon faced multiple lawsuits from South Korean investors.
Initially blaming external actors, Terraform Labs’ claims of corruption by investment funds like Citadel Securities lacked specific evidence and were refuted.
According to data from CoinGecko, the price of LUNA, Terraform Labs’ token, has dipped nearly 6% following the bankruptcy announcement. LUNA was issued in May 2022 as the company’s effort to resurge after the de-pegging event. Two tokens linked to the case, LUNC and USTC, formerly known as LUNA and UST, have also seen a price drop.
Terra is a decentralized blockchain platform that provides stablecoins pegged to various fiat currencies. The primary stablecoin on the Terra network is Terra’s native stablecoin, Terra (UST). Luna serves as the governance and staking token for the Terra ecosystem.
Following the notorious de-pegging of UST, the ecosystem crashed dramatically. Following the collapse that activated the crypto winter, Do Kwon came up with LUNA 2.0, a hard fork of LUNA, in an effort to revive the ecosystem.
The idea faced controversy as some industry figures found it unrealistic. Changpeng Zhao (CZ), the former CEO of Binance, voiced against this idea, claiming that it wouldn’t work. CZ said that forking wasn’t a valuable option and deactivating on-chain and off-chain transactions based on snapshots was impossible.
The Do Kwon Angle
While Do Kwon sought a revival with LUNA 2.0, the Terra community decided to stick with the old Terra blockchain. The original LUNA and UST were rebranded as LUNC and USTC.
In December last year, LUNC and USTC saw a strong rally. USTC soared to over $ 0.03, marking a remarkable 170% increase. Simultaneously, Terra Luna Classic (LUNC) experienced a substantial 30% surge, reaching $0.000096.
The primary catalyst for this notable upswing is attributed to the initial outcomes of a community-driven initiative to restore the Terra Classic ecosystem to its former glory in 2021.
The surge in staking rates and increased utilization of the Terra Classic network indicate a positive sentiment among users, signaling a trajectory toward recovery for the ecosystem. However, it is essential to acknowledge that the current growth, while significant, still needs to catch up to the project’s previous stature.