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Journalist
Hassan Shittu
Journalist
Hassan Shittu
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Terraform Labs (TFL), the company behind the Terra ecosystem, made an important announcement on Wednesday regarding its ongoing Chapter 11 bankruptcy proceedings.
The Bankrupt crypto firm is set to face its Chapter 11 bankruptcy reorganization hearing on September 19. The hearing will be critical in determining the company’s fate following its ongoing legal battles and financial instability since the collapse of its Terra ecosystem in 2022.
The court’s decision will decide whether Terraform Labs can successfully restructure and emerge from bankruptcy or if it will be forced to liquidate its remaining assets and cease operations entirely.
September 19 Decides Terraform Labs’ Future
On August 21, TFL took to X to disclose details of the hearing, which involves both Terraform Labs Pte Ltd (TFL) and Terraform Labs Limited (TLL). This hearing is a critical step in the company’s bankruptcy reorganization plan.
Today, August 21, also marks the deadline for creditors to file their Preliminary Crypto Loss Proof of Claim forms, a necessary step for those wishing to vote on the proposed Chapter 11 Plan.
Terraform Labs filed for Chapter 11 bankruptcy in January and reached a $4.47 billion settlement with the U.S. Securities and Exchange Commission (SEC) in June.
The Bankruptcy Court for the District of Delaware recently approved TFL’s proposed reorganization plan.
Terra intends to reopen the Shuttle Bridge to redeem wrapped assets on Terra Classic as part of this plan. The firm will also burn LUNA ecosystem tokens in TFL and Luna Foundation Guard (LFG) wallets.
Users will have 30 days to redeem wrapped assets from the bridge wallets, after which any unclaimed crypto assets will be burned.
Terraform Labs is now working to sell key assets as part of its bankruptcy proceedings as it winds down operations.
The company is actively exploring the sale 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.
Terraform Labs has invited interested buyers to contact CAVU Securities, its investment banker, regarding the potential acquisition of its businesses.
These sales aim to raise funds to meet the obligations set forth in the SEC settlement.
How Terraform Labs Got Here?
The company has been in turmoil since the dramatic collapse of its Terra ecosystem in 2022 when its TerraUSD (UST) stablecoin lost its peg to the US dollar.
This led to a crash in both USTC and LUNC, resulting in nearly $40 billion in market losses and the collapse of several crypto hedge funds that had collateral with the firm.
The collapse eroded investor confidence and brought intense scrutiny from regulators, leading to a lawsuit from the US Securities and Exchange Commission (SEC) in February 2023.
Terraform Labs filed for Chapter 11 bankruptcy in Delaware in January 2024, marking the start of a complex legal process.
Do Kwon, the company’s co-founder and former CEO, also faced legal challenges. In July 2024, Terraform and Kwon reached a joint settlement with the SEC, agreeing to pay $4.5 billion in penalties, disgorgement, and interest.
The agreement included nearly $3.6 billion in disgorgement, a $420 million civil penalty, and approximately $467 million in prejudgment interest.
As part of the settlement, Kwon agreed to pay $110 million in disgorgement, $14.3 million in prejudgment interest, and an $80 million civil penalty.
In the settlement, one of the largest in cryptocurrency history, both Terraform and Kwon were effectively banned from the cryptocurrency industry.
As the September 19 hearing approaches, Terraform Labs’ future hangs in the balance, with the court’s decision set to determine the company’s next chapter.
