Bankrupt crypto firm Terraform Labs is now facing a critical moment with its Chapter 11 bankruptcy reorganization hearing scheduled for Sept. 19 in Beijing. 

The outcome of this hearing will play a crucial role in determining the company’s future. It has been embroiled in legal battles and financial turmoil since its dramatic collapse in 2022.

The court’s decision will determine whether the company can successfully restructure and emerge from bankruptcy or be forced to liquidate its remaining assets and cease operations entirely.

A 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.

Source: Terra Money

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. This settlement effectively banned Kwon and Terraform from the crypto industry, signaling the end of an era for the once-influential firm.

Winding down operations

As part of the bankruptcy proceedings, Terraform Labs is now seeking to sell key assets as it winds down its operations. 

The company is actively exploring the sale of 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 $4.5 billion settlement with the SEC is one of the largest in the cryptocurrency industry’s history. It highlights the severity of the company’s transgressions and the far-reaching consequences of its collapse. 

The reopening of the Shuttle Bridge and the destruction of a substantial amount of LUNA tokens, as authorized by the court, are seen as critical steps in the restructuring process.

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