Do Kwon’s fallout: Terraform Labs to shut down after $4.47B penalty

Terraform Labs’ closure and $4.47 billion SEC settlement reveal the consequences of crypto fraud.
Cases involving Kwon, Zhao, and Bankman-Fried emphasize need for increased scrutiny in crypto.

As a researcher with experience in the crypto industry, I’ve witnessed firsthand the rapid growth and innovation in the space, but also the risks and consequences that come with it. The recent closure of Terraform Labs and the substantial SEC settlement against its founder, Do Kwon, serve as stark reminders of the need for increased scrutiny and regulation in the crypto world.

As a cryptocurrency market analyst, I’ve noticed that while many exciting new projects are gaining traction and making news with successful launches, the aftermath of certain failed crypto businesses has become quite noteworthy as well.

The fall of Terraform labs

Chris Amani, currently heading Terraform Labs, made an announcement that the company is shutting down after reaching a significant $4.47 billion agreement in settlement with the Securities and Exchange Commission (SEC).

The focus has now fallen on Do Kwon, the mastermind behind Terraform Labs, the organization responsible for creating a well-known US-tied stablecoin.

As a financial analyst, I would rephrase it as follows: With Terras and Luna’s valuations reaching billions and substantial venture funding under my belt, my journey in the crypto industry once shone brightly. However, recent developments have brought my path under intense scrutiny, joining the ranks of other prominent figures within this sphere.

Providing further insights on the same, a reporter from ‘The Street’ noted,

In April, the jury reached a consensus that Kwon and Terra Labs were responsible for securities fraud. For years, Kwon has eluded authorities following the collapse of his digital stablecoins, Luna and Terra.

Shedding light on the reasons behind the fallout of Terrform labs, the reporter added,

As an analyst, I’d rephrase it this way: “Unlike stablecoins, which are secured by tangible assets, Kwon’s digital coins were underpinned by intricate coding structures. When a crucial algorithm malfunctioned in 2022, a staggering $40 billion in market value seemingly vanished.”

The fraudster deceived investors regarding Terraform’s blockchain technology and the security of their stablecoin UST.

In May 2022, UST, together with Terraform’s other tokens, experienced a significant loss as UST failed to maintain its connection to the US dollar‘s value. Consequently, this event led to a substantial decrease in their values, erasing approximately $40 billion from their respective market capitalizations.

Gensler’s frustration on the issue

Investors, both retail and institutional, suffered substantial financial setbacks as a result of this situation. The false information disseminated by Terraform Labs added fuel to the fire, exacerbating the crisis among hedge funds, ultimately leading to mass withdrawals from these investments.

Expressing concern on the same, SEC Chair Gary Gensler in a press release said,

“The decision in this case reinforces the consensus among courts that the true economic nature of a product, rather than its labels, marketing, or publicity, is what ultimately defines whether it falls under the purview of securities laws.”

Do Kwon’s fallout: Terraform Labs to shut down after $4.47B penalty

The fall of Terraform labs

Gensler’s frustration on the issue

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