A Delaware court has approved Terraform Labs' application for Chapter 11 bankruptcy. Judge Brendan Shannon described the decision as a better option to prevent further complicated litigation over investor losses, as reported by Reuters.

Terraform Labs, known for its TerraUSD (UST) stablecoin and Luna (LUNA) token, saw both assets collapse in May 2022. This resulted in a loss of $45 billion in market value and triggered widespread bankruptcies in the crypto industry, leading to a prolonged "crypto winter."

Three Arrows Capital's liquidators have filed a $1.3 billion claim against Terraform Labs, accusing the company of market manipulation related to UST and LUNA. The claim, filed in U.S. Bankruptcy Court for the District of Delaware in August 2024, alleges that Terraform artificially influenced the open market for the tokens.

Although Kwon and Terraform Labs have been found guilty of civil fraud by a U.S. court, Kwon denied wrongdoing until this point. He was arrested in Montenegro in December 2023 on false passport charges after years on the run. Both the U.S. and South Korea have requested his extradition, and following a ruling in August, Kwon is now facing extradition to South Korea. Despite this, the SEC may recover little from the settlement, as Terraform must first pay off other losses during its liquidation process. The company estimates it may pay between $184.5 million and $442.2 million to investors, though the total losses remain uncertain.

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Reuters