Terraform Agrees To Pay Almost $4.5B To Settle With SEC

Academic FX
June 12, 2024
4 mins

KEY TAKEAWAYS

Terraform Labs has agreed to pay nearly $4.5 billion in a settlement of its case with the U.S. Securities and Exchange Commission.
In 2022, Terraform Labs’ LUNA and TerraUSD cryptocurrencies collapsed, leading to an estimated $40 billion worth of losses for crypto holders.
As part of the settlement, former Terraform Labs CEO Do Kwon will also contribute $200 million to the Terraform bankruptcy estate.

Terraform Labs, the company behind failed TerraUSD and Luna cryptocurrencies, has agreed to pay nearly $4.5 billion to settle a lawsuit filed by the U.S. Securities and Exchange Commission (SEC), an SEC filing seeking a court approval for the agreement showed Wednesday.

TerraUSD was an algorithmic stablecoin that needed another cryptocurrency Luna to maintain is 1:1 peg to the U.S. dollar. Both cryptocurrencies failed when that peg broke in May 2022, and investors lost an estimated $40 billion dollars.

The SEC sued Terraform and its former CEO Do Kwon last February for fraud, adding that the company misled investors with promises of 20% annual returns via a decentralised finance app known as Anchor Protocol.

What's in the $4.5B Settlement?

A little over four months since it began trading on Jan. 11, BlackRock’s bitcoin ETF became the largest spot bitcoin ETF by assets, passing Grayscale’s GBTC for the top spot. At the end of May, IBIT’s assets stood at $19.5 billion while GBTC’s were $19.385 billion.

GBTC is the oldest fund, with bitcoin investments that converted to an ETF when the U.S. Securities and Exchange Commission allowed spot bitcoin ETFs earlier this year. At that time, GBTC’s assets surpassed $24 billion.

However, as soon as other comparable products began trading, investors pulled large sums of money out of GBTC, resulting in roughly $17.9 billion in net outflows since Jan. 11. In sharp contrast, BlackRock’s IBIT has reported substantial inflows, pulling in about $16.6 billion this year, according to Farside Investors.

The disparity in fees between Grayscale’s ETF and other bitcoin ETFs from Blackrock, Fidelity, and others has played a crucial role in the competition that Grayscale’s fund has faced. For example, GBTC charges a 1.5% fee, while IBIT comes with a 0.25% fee.1 Notably, Grayscale plans to soon launch an alternative spot bitcoin ETF offering with lower fees under the BTC ticker.

Following a brief trial earlier this year, Terraform and Kwon were found guilty of defrauding investors.

Tags :

Cryptocurrency, Terraform

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