Anika Begay
TerraForm Labs, the creator of the controversial TerraUSD and LUNA coins, is now said to be at the center of a $1.3 billion lawsuit filed by Three Arrows Capital (3AC) in an attempt to recover damages from the digital asset’s catastrophic collapse in May 2022.
Once a giant cryptocurrency hedge fund, it now faces the consequences of its investments and is preparing to hold TerraForm accountable for its financial woes.
3AC Liquidator Seeks $1.3 Billion From Terraform Labs
Teneo, the liquidator of defunct cryptocurrency hedge fund Three Arrows Capital (3AC), is seeking more than $1.3 billion from Terraform Labs, according to Bloomberg. Terraform, co-founded by Do Kwon, is responsible for the collapse…
— CoinNess Global (@CoinnessGL) August 13, 2024
The Fall of a Cryptocurrency Giant
Three Arrows acquired LUNA tokens for $190 million in January this year, and that seems to have marked the beginning of its troubles. The value of 3AC’s stake in LUNA rose to $462 million in April 2022, as the market boomed.
Weeks later, however, all this ecology collapsed. Just one day after LUNA’s value collapsed, 3AC shares were worth just $2,700.
The fallout from 3AC has reverberated throughout the cryptocurrency market. Aside from that, many other companies have had to suffer severe losses and the aftermath has seen a wave of bankruptcies.
Shortly after the collapse, 3AC itself was declared bankrupt by a British Virgin Islands court, which appointed Teneo liquidators to manage its remaining assets. The once glorious reputation was now in tatters, and all the hedge fund’s losses needed to be recouped.
Three Arrows: Legal Wars Coming
3AC’s filing of a $1.3 billion claim against TerraForm Labs is indeed a major step toward recovering some of its lost wealth. Unfortunately, the outcome of this resulting court case remains unclear. With its bankruptcy filing in January 2024, TerraForm Labs is in a crisis of its own.
🚨UPDATE: Do Kwon’s extradition from Montenegro gets another delay. The saga continues for Terra co-founder. photo.twitter.com/2DgP15Bs9l
— Paweł Łaskarzewski (@PawelSynapse) August 8, 2024
The company’s co-founder, Do Kwon, has faced quite the ordeal with the law, including an arrest in Montenegro and possible extradition to his homeland of South Korea. He is also on trial by the United States for his role in the failure of LUNA and TerraUSD.
Wider implications
This raises the question: what is the future of Three Arrows and TerraForm Labs? Will 3AC ever recover a single cent of its losses or will it find itself embroiled in a protracted litigation with an insolvent company? Both sides of the case will find it quite difficult due to the subtleties of cryptocurrency markets and bankruptcy law.
Arguably, this has been the biggest blow to the money market yet, with the fallout from Terra’s collapse shaking not just Three Arrows and TerraForm Labs, but investor confidence in cryptocurrency overall. Many are wondering if the market has bottomed out or if there’s more pain to come. Regulatory scrutiny has increased, and investors are more cautious than ever.
Featured image from Financial News London, chart from TradingView
