Terraform Labs' $1.3B Settlement with 3AC Approved

Terraform Labs' $1.3B Settlement with 3AC Gets the Green Light

A U.S. bankruptcy court has officially approved the $1.3 billion settlement between Terraform Labs and the now-bankrupt hedge fund, Three Arrows Capital (3AC). This ruling addresses a significant claim stemming from the 2022 Terra/LUNA collapse.

What Happened to 3AC?

Singapore-based Three Arrows Capital, founded by Su Zhu and Kyle Davies, crumbled in June 2022 after massive losses, largely tied to the Terra/LUNA crash. The fund subsequently filed for court-ordered liquidation.

Key Court Ruling

Judge Brendan L. Shannon in the District of Delaware determined how 3AC's claim will be treated within Terraform Labs' Chapter 11 bankruptcy. The court classified 3AC's losses as a "Crypto Loss Claim." This puts 3AC in the same category as other crypto investors who suffered losses when UST, Terra's algorithmic stablecoin, and LUNA plummeted, wiping out roughly $60 billion in market value.

Significance of the Ruling

This classification is crucial as it determines how 3AC will be compensated compared to general unsecured creditors. It essentially recognizes 3AC's losses as being directly tied to the crypto crash, rather than general business debt.

Ending a Long Dispute

The agreement resolves months of contention between Terraform's plan administrator, Todd Snyder, and 3AC's liquidators. 3AC will initially withdraw its claim but reserves the right to refile portions if some damages are deemed outside the scope of "Crypto Loss Claims."

Claim Deadline for Investors

Investors seeking compensation from Terraform Labs have until May 16, 2025, to file their claims online. These claims must relate to losses suffered due to cryptocurrencies created by Terraform or held within its ecosystem after the second "de-peg" of UST from the U.S. dollar.

Looking Ahead

Terraform's bankruptcy plan, approved in September 2024, involves a Wind-Down Trust to liquidate assets and distribute funds to creditors. The company still faces legal challenges from the SEC. This ruling represents an important coordinated step between the bankruptcies of Terraform Labs and Three Arrows Capital and could set a precedent for handling similar disputes in future crypto failures.

Key Takeaways:

• The court approved the $1.3 billion settlement between Terraform Labs and 3AC.
• 3AC's losses are classified as "Crypto Loss Claims," impacting the compensation structure.
• Investors have until May 16, 2025, to file claims related to the Terra/LUNA collapse.