Defunct stablecoin firm Terraform Labs has had its application for Chapter 11 bankruptcy approved by a Delaware court.

Judge Brendan Shannon called the move a “welcome alternative” that avoids complex further litigation over the losses by Terraform’s investors, according to reporting by Reuters.

The company was mainly known for its TerraUSD (UST) stablecoin and accompanying Luna (LUNA) token. Both assets collapsed in May 2022, wiping out $45 billion in market value overnight and causing bankruptcies throughout the crypto industry. It led to a “crypto winter” that lasted well over a year.

Crypto hedge fund Three Arrows Capital (3AC) crashed due to exposure to Terraform’s TerraUSD (UST) and Luna (LUNA) tokens, later leading to extensive litigation on the part of 3AC to receive compensation.

The news comes after Terraform filed for Chapter 11 bankruptcy in January 2024. Months later, the firm agreed to pay the Securities and Exchange Commission (SEC) a $4.47 billion settlement after being found guilty of defrauding investors.

Terraform founder and former CEO Do Kwon, was found to have misled investors about the financial stability of his firm, at one point claiming that TerraUSD, which was meant to be pegged to $1, was used by a popular Korean mobile payments app.

Both Kwon and Terraform Labs have been found guilty of civil fraud charges by a U.S. court, though Kwon had denied innocence up until this point.

However, the SEC may ultimately collect little from today’s decision as the settlement amount will only be paid to the regulator if Terraform covers all other losses in its liquidation process.

The company estimated it could ultimately pay between $184.5 million and $442.2 million to investors and other stakeholders as part of the liquidation, but the company admitted that the total value of the eligible crypto losses remained “impossible to estimate.”

Terraform Labs founder Do Kwon spent years evading the authorities while staying in various locations throughout Europe and Asia.

The 33-year-old disgraced entrepreneur was arrested in the European country of Montenegro on false passport charges in December 2023, and both the U.S. and South Korea attempted to extradite him.

Following an August ruling by Montenegro’s Supreme Court, Kwon is now facing extradition to his native South Korea.

Edited by Stacy Elliott.

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