The minds behind the controversial TerraUSD and LUNA tokens, TerraForm Labs, are now reportedly the target of a staggering $1.3 billion lawsuit filed by Three Arrows Capital (3AC) in an attempt to recoup damages caused by the digital asset’s catastrophic collapse in May 2022.

Once a giant cryptocurrency hedge fund, it must now face the consequences of its investments and prepare to hold TerraForm accountable for its financial woes.

3AC Liquidator Demands $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, Bloomberg reports. Terraform, co-founded by Do Kwon, is responsible for the collapse…

— CoinNess Global (@CoinnessGL) August 13, 2024

The Fall of a Crypto Giant

Three Arrows acquired $190 million worth of LUNA tokens in January of this year and that seemed to be the beginning of the problems. The value of 3AC’s stake in LUNA rose to $462 million in April 2022, as the market boomed.

Weeks later, however, this whole ecology collapsed. Just one day after LUNA’s value plummeted, 3AC’s shares were worth only $2,700.

The fallout from 3AC resonated throughout the crypto market, with many other companies suffering heavy losses and a wave of bankruptcies following the aftermath.

Shortly after the crash, 3AC itself was declared bankrupt by a British Virgin Islands court, which appointed Teneo liquidators to manage its remaining assets. What had once been a glorious reputation was now in tatters and there was a need to recover all of the hedge fund’s losses.

Three Arrows: Legal Wars Ahead

3AC’s filing of $1.3 billion in damages against TerraForm Labs is indeed a significant step toward recovering some of its lost wealth. Unfortunately, the outcome of this resulting legal dispute 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 is delayed again. The saga continues for the Terra co-founder. photo.twitter.com/2DgP15Bs9l

— Paweł Łaskarzewski (@PawelSynapse) August 8, 2024

The company’s co-founder, Do Kwon, has endured a notable brush with the law, including an arrest in Montenegro and possible extradition to his home country of South Korea. He is also being prosecuted by the United States for his role in the failure of LUNA and TerraUSD.

Broader implications

This fact begs the question: what is the future of Three Arrows and TerraForm Labs? Can 3AC ever recover a cent of its losses or will it end up in a long-term lawsuit with an insolvent company? Both parties in the case will have a pretty tough time due to the intricacies of the crypto market and bankruptcy law.

It was probably the biggest blow to the money market to date, due to the fallout from the Terra crash, which not only shook Three Arrows and TerraForm Labs, but also investor confidence in cryptocurrencies across the board. Many are wondering if the market has bottomed or if more pain is in store. Regulatory scrutiny has increased and investors are more cautious than ever.

Main image from Financial News London, chart from TradingView