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Terraform Labs (TFL), the mastermind behind the now-defunct stablecoin TerraUSD, has officially filed for Chapter 11 bankruptcy in the United States. This move follows the tumultuous collapse of TerraUSD, which reverberated through cryptocurrency markets in 2022.
"The filing will allow TFL to execute on its business plan while navigating ongoing legal proceedings, including representative litigation pending in Singapore and U.S. litigation involving the Securities and Exchange Commission (SEC)," Terraform Labs said in a statement.
Despite the financial turbulence, the company assured stakeholders that it aims to meet all financial commitments to employees and vendors throughout the Chapter 11 proceedings, steering clear of the need for additional funding.
Terraform Labs views the Chapter 11 filing not as a surrender but as a strategic play to sustain operations and tackle ongoing litigation both in Singapore and the United States, particularly with the Securities and Exchange Commission (SEC).
Financial Landscape
The beleaguered cryptocurrency firm admitted to holding estimated assets and liabilities between $100 million and $500 million. This revelation offers a glimpse into the financial fallout from the collapse of TerraUSD and the associated LUNA token in May 2022. The number of creditors, ranging from 100 to 199, includes notable names such as TQ Ventures and Standard Crypto among the unsecured creditors.
Despite adversity, the company has maintained its commitment to expanding its Web3 offerings. Recent moves include the acquisition of Pulsar Finance, a cross-chain portfolio manager and data provider, and the launch of Station v3, a cryptocurrency wallet, showcasing the company's commitment to growth amid challenging times.
According to Terraform Labs CEO Chris Amani, the Chapter 11 filing is a strategic move. He stressed the necessity of this action to continue working towards collective goals while simultaneously addressing the outstanding legal challenges faced by the company.
Legal Battles and Extradition
The SEC's civil case against Terraform Labs and co-founder Do Kwon is intricately linked to the collapse of TerraUSD and the Luna token.
The case involves allegations of a $40 billion cryptocurrency fraud. A federal judge recently postponed Do Kwon's trial to facilitate his extradition for his alleged involvement in cryptocurrency fraud.
In May 2022, TerraUSD's failure to maintain its $1 peg resulted in the loss of an estimated $40 billion or more. Both TerraUSD and the associated token Luna bore the brunt of the collapse, causing widespread turbulence in global cryptocurrency markets.