The troubles for Terra seem unending! Recently, Three Arrows Capital (3AC) filed a $1.3 billion lawsuit against Terraform Labs to recover massive losses from the collapse of Luna and TerraUSD, according to Bloomberg. This lawsuit is linked to the dramatic events of 2022, when Terra’s ecosystem fell apart.

Here’s all the key points you need to know.

Allegations of Market Manipulation

On August 9, a document filed in the U.S. Bankruptcy Court for the District of Delaware revealed that the liquidators accuse Terraform Labs of manipulating the market for its tokens—TerraUSD (UST) and LUNA. They claim that Terraform Labs artificially raised the prices of these assets, causing 3AC to invest heavily in LUNA and UST. This alleged manipulation is blamed for 3AC’s major losses.

Background of the Collapse

In May 2022, Terra’s ecosystem collapsed, erasing $40 billion in value. 3AC, which had heavily invested in Terra, filed for bankruptcy in July 2022 after suffering significant financial losses. Documents show that 3AC bought $190 million worth of LUNA in January 2022, which rose to $462 million by April. However, a drop in TerraUSD’s value caused its price to fall to $2,700 by mid-May, leading to a sharp drop in 3AC’s total holdings.

Ongoing Legal Battles

In June 2023, the liquidators sought $1.3 billion from 3AC founders Su Zhu and Kyle Davies over the fund’s bankruptcy. Terraform Labs also filed for bankruptcy in Delaware in January 2024. Do Kwon, who has faced legal issues since Terra’s collapse, was found guilty of civil fraud by a Manhattan jury in April 2024. He remains in Montenegro, facing possible extradition to South Korea or the U.S. for further legal actions.

Last month, the SEC announced that Terraform Labs and former CEO Do Kwon agreed to a $4.5 billion settlement over civil fraud charges related to the collapse. Kwon, still in Montenegro, faces extradition, while Terraform Labs is dealing with its bankruptcy.

What’s Next for the Crypto Market?

As these legal battles continue, the impact on the broader cryptocurrency market remains to be seen. Stay tuned for updates and analysis on how these developments might affect other crypto assets and market trends.

Read Also: How U.S. Treasury Moves Could Skyrocket Bitcoin: Arthur Hayes’ Crypto Market Prediction for 2025

The Terra collapse serves as a stark reminder of the risks of the crypto market. As the legal battles play out, investors and regulators alike are watching closely.

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