Bankrupt crypto firm Terraform Labs is now facing a critical moment with its Chapter 11 bankruptcy reorganization hearing scheduled for Sept. 19 in Beijing. This hearing will play a crucial role in determining the company’s future amidst ongoing legal and financial troubles.
Fall from grace
Terraform Lab’s fortunes took a sharp turn when its stablecoin UST lost its peg to the US dollar in May 2022, triggering a catastrophic collapse that wiped out billions of dollars in value. This event not only led to a loss of investor confidence but also attracted intense scrutiny from regulators, culminating in a lawsuit from the United States Securities and Exchange Commission (SEC) in February 2023.
Seeking solutions
In January 2024, Terraform Labs filed for Chapter 11 bankruptcy in Delaware, marking the beginning of a long and complex legal process. The company’s co-founder and former CEO, Do Kwon, who had been at the center of the controversy, also faced legal action. In a joint settlement with the SEC announced in July 2024, Terraform and Kwon agreed to pay a staggering $4.5 billion in penalties, disgorgement, and interest, effectively banning them from the crypto industry.
Winding down operations
As part of the bankruptcy proceedings, Terraform Labs is now seeking to sell key assets, including the portfolio tracking platform Pulsar Finance, the crypto wallet platform Station, the no-code decentralized autonomous organization (DAO) management platform Enterprise, and the smart contract automation protocol Warp. These businesses, once considered valuable assets, are now being sold as Terraform attempts to raise funds to meet its obligations under the SEC settlement.
The court’s decision on the reorganization or liquidation of Terraform Labs will be a significant moment for the company and the wider crypto industry. The results of the hearing will reveal whether the company can return to the market or will be forced to close down for good.
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