Terraform Labs, the blockchain company behind the Terra protocol, received approval from a U.S. court on Thursday to proceed with the wind-down of its operations in the midst of bankruptcy. This decision came during a pivotal Chapter 11 bankruptcy reorganization hearing on September 19, marking a crucial step in the firm’s legal and financial troubles.
U.S. Bankruptcy Judge Brendan Shannon, presiding in Wilmington, Delaware, granted the motion, describing the outcome as a “welcome alternative” to prolonged litigation. Terraform Labs, led by its embattled founder Do Kwon, had been locked in legal battles and faced intense scrutiny following the collapse of its TerraUSD and Luna stablecoins, which wiped out approximately $60 billion in investor value.
The company 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, down from the SEC’s original claim of $5.3 billion.
Bankruptcy Plan and Settlement
With approval from the court, Terraform Labs is set to liquidate its assets and settle with creditors and stakeholders. The estimated settlement figure ranges between $184.5 million and $442.2 million, though the exact amount remains uncertain. The company’s CEO, Chris Amani, previously stated that the wind-down had always been the firm’s plan, signaling the complete dissolution of operations.
The SEC, which accused Terraform Labs and Do Kwon of orchestrating a massive crypto fraud scheme, will collect only after the firm settles with its creditors. Due to the scale of financial losses incurred, Terraform Labs admitted it is “impossible to estimate” the total value of eligible crypto losses to be repaid.
Do Kwon’s Legal Troubles
Terraform’s collapse led to widespread financial devastation, and Do Kwon became a fugitive, evading capture for several months by relocating across Europe and Asia. Kwon was eventually apprehended in Montenegro in the spring of 2023, where he remains in custody while facing possible extradition to either the U.S. or South Korea.
The Montenegrin Supreme Court is expected to make a decision by the end of this month regarding whether any legal violations occurred during his extradition process, which could further complicate Kwon’s fate.
Terraform Labs’ liquidation marks a significant chapter in the aftermath of one of the largest collapses in crypto history, leaving regulators and creditors grappling with how to recover lost funds.
