Terraform Labs Bags Approval to Wind Down Bankruptcy Operations | Coinspeaker

Terraform Labs Bags Approval to Wind Down Bankruptcy Operations

Godfrey Benjamin By Godfrey Benjamin Julia Sakovich Edited by Julia Sakovich Updated 3 min read
Terraform Labs Bags Approval to Wind Down Bankruptcy Operations
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The Terraform Labs startup is on track to wind down its operations after receiving the approval from Judge Brendan Shannon.

Key Notes

  • Terraform Labs has received authorization to close its bankruptcy proceedings.
  • The firm imploded in 2022 but entered bankruptcy earlier this year.
  • Once closed, the Terra protocol will become a community-managed outfit.

Bankrupt crypto firm Terraform Labs Pte. Ltd had its Chapter 11 bankruptcy reorganization hearing on Thursday, and it was cleared to wind down its bankruptcy process. US Bankruptcy Judge Brendan Shannon approved the bankruptcy plan at a hearing in Wilmington, Delaware. She called it a “welcome alternative” that allows further litigation over Terraform investor losses.

This comes after Terraform Labs agreed to settle with the United States Securities and Exchange Commission (SEC) in the case that indicted the company for defrauding investors. The affected investors lost approximately $40 billion when TerraUSD and LUNA LUNA $0.36 24h volatility: 2.1% Market cap: $249.93 M Vol. 24h: $20.36 M tokens collapsed two years ago.

Terraform’s Chapter 11 Bankruptcy Journey

Terraform Labs officially filed for Chapter 11 bankruptcy protection in the United States at the beginning of this year. The crypto firm was pursuing a self-funded Chapter 11 filing, hoping it would provide the necessary breathing room to pursue the appeal, continue its software development business, and sustain LUNA’s value for stakeholders.

Even Chris Amani, the CEO of Terraform Labs, stated that the company’s decision to file for Chapter 11 bankruptcy is a strategic move to enhance its chances of appealing a fraud lawsuit filed by the US SEC. At the time, Terraform claimed that its estimated assets and liabilities increased from $100 million to $500 million. Also, the number of creditors was pegged at between 100 and 199.

In June, Terraform Labs was ordered to pay roughly $4.5 billion to the SEC in fines and settlement. This included $3.6 billion in disgorgement, $420 million in civil penalty, and around $467 million in prejudgment interest. Do Kwon, the distraught founder of the crypto firm, also agreed to pay $110 million in disgorgement, $80 million in civil penalty, and $14.3 million in prejudgment interest.

Do Kwon has been caught up in extradition battle in Montenegro for months now.

Terraform Labs Focuses on Repaying Crypto Loss Claims

The chances that the SEC will receive any part of these settlements are slim. The agreement stated that the fines would only be paid after Terraform Labs fulfilled its obligations to those with crypto loss claims due to its collapse. The bankrupt firm highlighted that it is impossible to estimate these claims.

At the same time, it made it clear that it has only between $184.5 million and $442.2 million to pay crypto purchasers and other stakeholders as part of its bankruptcy liquidation.

With the approval to wind down its operations, the Terra blockchain will be transitioned to community management. This is linked to Proposal 4818, the final chain upgrade for the Terra blockchain, set to implement critical changes before Terraform Labs concludes its operations. It is worth noting that this proposal will help complete necessary updates and ensure the network’s stability as Terraform Labs winds down its support.

This upgrade will address technical requirements and prepare the blockchain for transition to community-led management.

Disclaimer: Coinspeaker is committed to providing unbiased and transparent reporting. This article aims to deliver accurate and timely information but should not be taken as financial or investment advice. Since market conditions can change rapidly, we encourage you to verify information on your own and consult with a professional before making any decisions based on this content.

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Godfrey Benjamin

Benjamin Godfrey is a blockchain enthusiast and journalist who relishes writing about the real life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology. His desire to educate people about cryptocurrencies inspires his contributions to renowned blockchain media and sites.

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