The financial crisis at Terraform Labs and UST sent shockwaves through the market, resulting in massive losses for investors. Now, nearly two years later, what is the current status of this cryptocurrency turmoil?
Do Kwon, the enigmatic founder of Terraform Labs and the mastermind behind TerraUSD (UST) and Luna tokens, remains a controversial figure in the world of cryptocurrency. In mid-March 2022, the value of UST and Luna took a nosedive, nearly wiping out $60 billion from investors’ portfolios.
Since then, significant developments have unfolded. Kwon is facing extradition, and efforts are underway to revive the once-thriving project. The situation surrounding Terraform Labs and Do Kwon continues to evolve.
The Collapse of the Terra Ecosystem
In May 2022, coinciding with news of an investigation, the price of UST plummeted to $0.98, breaking its peg to the dollar. Kwon reassured investors that everything was under control, but the next day saw a further decline to $0.35.
Turning to Twitter, Kwon urged his followers to invest more to maintain the dollar peg, but this tactic proved unsuccessful. Investors began offloading UST and Luna, causing Luna’s value to plummet to $0.10, a staggering 96% drop. Social media users speculated that the Terra ecosystem was a pyramid scheme designed to defraud investors.
The Revival of Terraform Labs
In mid-May 2022, Kwon broke his silence and unveiled plans for a new Terra blockchain, excluding UST. This proposal garnered support from 65% of investors. Terra 2.0 launched on May 28, 2022, but its value quickly tanked, with Luna losing 77% of its worth, followed by an additional 20% decrease on June 8. Amid these developments, Kwon restricted access to his Twitter account, limiting it to select followers.
Investigation by U.S. and South Korean Authorities
In June 2022, the U.S. Securities and Exchange Commission (SEC) launched an investigation into Terraform Labs and its stablecoin. The SEC probed whether the promotion of UST violated federal investor protection laws before the stablecoin crash. The SEC charged Terraform Labs and co-founder Do Kwon with a multi-billion-dollar securities fraud by February 2023.
In South Korea, prosecutors delved into the collapse of the Terra project, issuing arrest warrants for Kwon and five others for violating capital markets laws. The Korean prosecutor’s office seized assets worth $104 million of Terraform Labs co-founder Daniel Shin.
Bankruptcy and Extradition
On January 21, Terraform Labs filed for bankruptcy, estimating its assets and liabilities between $100 million and $500 million, with 100 to 199 creditors. The company pledged to fulfill financial obligations during the Chapter 11 process without additional funding, focusing on developing web3 offerings.
Do Kwon’s escape to Serbia and subsequent arrest in Montenegro led to a standoff over his extradition to the U.S. or South Korea. After a year-long debate, Montenegro’s Supreme Court decided to extradite Kwon to South Korea, overturning the initial plan to hand him over to U.S. authorities.
In conclusion, the aftermath of the Terraform Labs collapse continues to unfold, with the bankruptcy of the company and the extradition of its founder, Do Kwon, marking a new chapter in one of the most significant cryptocurrency debacles. The fate of investors and the potential legal repercussions faced by Kwon remain uncertain, as South Korean authorities prepare to take action against him for his alleged wrongdoings.