The brains behind the controversial TerraUSD and LUNA coins, TerraForm Labs, are now said to be the target of an eye-popping $1.3 billion lawsuit filed by Three Arrows Capital (3AC) in efforts to recoup damages from the catastrophic breakdown of the digital assets in May of 2022.

Once a cryptocurrency titan hedge fund, it is now to face the consequences of its investments, gearing up to hold TerraForm accountable for its financial woes.

3AC liquidator seeks $1.3B from Terraform Labs

Teneo, the liquidator for the defunct cryptocurrency hedge fund Three Arrows Capital (3AC), is seeking over $1.3 billion from Terraform Labs, according to Bloomberg. 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 tokens of LUNA in January this year and that seemed to have spelled the beginning of its problems. The value of 3AC’s stake in LUNA soared to $462 million by April 2022 as the market boomed.

Weeks later, though, this whole ecology collapsed. Just one day after LUNA’s value plunged, the shares 3AC had were worth just $2,700.

The fallout of 3AC resonated throughout the entire cryptocurrency market. Aside from that, many other firms thus had to suffer severe losses, and the aftermath saw a wave of bankruptcies.

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

Three Arrows: Legal Wars Ahead

The filing of 3AC’s $1.3 billion claim against TerraForm Labs is indeed an important step towards the recovery of part of its lost wealth. Unfortunately, the result of this resulting court dispute remains unclear. With its January 2024 bankruptcy filing, TerraForm Labs is in a crisis of its own.

🚨UPDATE: Do Kwon’s extradition from Montenegro faces another delay. The saga continues for the Terra co-founder. pic.twitter.com/2DgP15Bs9l

— Paweł Łaskarzewski (@PawelSynapse) August 8, 2024

The co-founder of the business, Do Kwon, had been through a quite remarkable ordeal with the law, including an arrest in Montenegro and maybe extradited to his homeland, South Korea. He is also under prosecution by the United States for the part he played in the failure of LUNA and TerraUSD.

Broader Implications

This fact raises a question: what is the future of Three Arrows and TerraForm Labs? Can 3AC ever recover a single penny from its losses or will it get entangled in prolonged litigation with an insolvent enterprise? Both parties of the case shall find it rather difficult due to the subtleties within cryptocurrency markets and the law of bankruptcy.

It was arguably the heaviest blow to the money market yet, on account of the fallout from the Terra crash, which shook not only Three Arrows and TerraForm Labs but also investor confidence across the board in cryptocurrency. Many wonder if the market has hit rock bottom or if more pain is in store. Regulatory scrutiny has increased, and investors are more cautious than ever.

Featured image from Financial News London, chart from TradingView