A recent decision by a US federal judge paused the legal proceedings against Terraform Labs and its founder, Do Kwon. Currently, the company is seeking protection under Chapter 11 of the constitution, claiming assets and liabilities between $100 million and $500 million. Allegations have been made against Do Kwon for engaging in a $40 billion crypto fraudulent activity, purportedly triggering the 2022 crypto downturn.

Facing extradition approval by the Montenegro legal system to South Korea or the United States, Do Kwon, the founder of Terraform Labs, encounters additional legal hurdles. The US Securities and Exchange Commission (SEC) prevailed in the case after a federal judge ruled Terra LUNA tokens as unregistered securities.

Publicly disclosed court documents on January 21 revealed that Terraform Labs voluntarily filed for Chapter 11 protection in the US Court in Delaware to shield non-individuals from bankruptcy. Terraform Labs claims its current liabilities fall within the range of $100 million to $500 million, a fraction compared to the $40 billion losses in 2021. Nevertheless, the company is committed to continuing its legal battles.

Following the Chapter 11 filing, tokens associated with Terraform Labs, like TerraClassicUSD (USTC), Terra LUNA, and Terra Luna Classic, experienced nullified gains. The bankruptcy proceedings are anticipated to be protracted, potentially resulting in further losses as more investors liquidate their holdings, turning their attention to cryptocurrency projects offering more promising returns. Terraform Labs injected $15 million into Terra Luna in November 2023 to enhance liquidity.