Terraform Labs Files for Bankruptcy

Terraform Labs, whose collapse triggered a wider cryptocurrency market earthquake, has filed for bankruptcy.

The Singapore-based digital asset company filed for Chapter 11 in Delaware Sunday (Jan. 21), listing assets and liabilities between $100 million and $500 million.

Terraforms’s TerraUSD had been the third-largest stablecoin by market cap before collapsing in May of 2022, a downfall which in turn triggered the implosion of the price of the algorithmic stablecoin’s partner token, Luna.

This wiped out at least $40 billion in value and helped bring about a $2 trillion plunge in the crypto markets, leading other companies into bankruptcies. 

Last year, Terraform and Luna co-founder Do Hyeong Kwon were charged by the Securities and Exchange Commission (SEC) with violating the registration and anti-fraud provisions of the Securities Act and the Exchange Act.

The SEC said that the company and Kwon marketed crypto assets securities to profit-seeking investors while misleading them about their product’s value and stability.

“We allege that Terraform and Do Kwon failed to provide the public with a full, fair and truthful disclosure as required for a host of crypto asset securities, most notably for Luna and Terra USD,” SEC Chair Gary Gensler said in a news release at the time. “We also allege that they committed fraud by repeating false and misleading statements to build trust before causing devastating losses for investors.”

A report by Bloomberg News on Sunday said Kwon had been jailed in Montenegro for traveling on a fake passport and could be extradited to the U.S. by mid-March to face the SEC’s charges. He also faces fraud charges in South Korea.

Meanwhile, a recent report by blockchain analysis firm Chainalysis found that stablecoins have supplanted bitcoin as a key mover of illicit transactions, with these coins making up the bulk of illicit volumes last year (and the year before that).

“Through 2021, bitcoin reigned supreme as the cryptocurrency of choice among cybercriminals, likely due to its high liquidity,” the report said. “But that’s changed over the last two years, with stablecoins now accounting for the majority of all illicit transaction volume. This change also comes alongside recent growth in stablecoins’ share of all crypto activity overall, including legitimate activity.”

The report estimated that stablecoins accounted for around 70% of scams tied to crypto transactions last year (even as the volumes dropped by more than 40% year over year), with a value of $40 billion as measured across the last two years.

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