In a surprising turn of events, Terraform Labs, the entity behind the devalued algorithmic stablecoin Terra USD (USTC), has filed for Chapter 11 bankruptcy in the U.S. District of Delaware on January 21. The decision comes as the company grapples with significant legal battles, including litigation from the U.S. Securities and Exchange Commission (SEC), following the collapse of the Terra/Luna ecosystem.

The bankruptcy filing is described as a strategic move by Terraform Labs to concentrate on its business plan amidst ongoing legal challenges. This includes navigating the aftermath of the Terra/Luna collapse and addressing significant litigation from the SEC. Despite the bankruptcy filing, the company asserts its ability to independently meet financial commitments to employees without external assistance, stating that its assets and liabilities fall within the range of $100 million to $500 million.

Notably, the list of unsecured creditors, as revealed in the court filing, includes co-founders Do Kwon and Daniel Shin, along with major entities such as Amazon Web Services Singapore, Three Arrow Fund, and others.

Chris Amani, the CEO of Terraform Labs, emphasized that the bankruptcy filing is a necessary step to address outstanding legal issues. Amani expressed confidence that this legal maneuver would pave the way for the company to continue advancing innovative tools, infrastructure, and ecosystem support. He mentioned, “We have overcome significant challenges before and, against long odds, the ecosystem survived and even grew in new ways post-depeg; we look forward to the successful resolution of the outstanding legal proceedings.”

This Chapter 11 filing comes at a crucial time, as Terraform Labs faces an impending trial with the SEC. Both Kwon and Terraform Labs are subjects of litigation related to the $40 billion crash of the Terra ecosystem. The trial, initially scheduled for this month, has been postponed to allow Kwon to be physically present at the proceedings. Kwon is currently detained in Montenegro after being caught with forged documents.

The news of Terraform Labs’ bankruptcy has rippled through various Terra-based tokens, with significant declines recorded in the past 24 hours. USTC, the devalued Terra USD stablecoin, saw a notable drop of 7.64%, settling at $0.02491. Efforts to restore its value since its depeg in May 2022 have proven unsuccessful.

LUNC, another Terra-based token, experienced a decrease of 6.82%, currently priced at $0.00010—reflecting a substantial 100% decline from its all-time high of $119. Additionally, the native token of the ecosystem’s new blockchain, LUNA, witnessed a downturn of 7% to $0.61381 as of press time.

It is crucial to note that these declines align with a broader market trend where major cryptocurrencies, including Bitcoin, Ethereum, Solana, and XRP, collectively shed an average of more than 2% of their respective values during the same period. The fallout from Terraform Labs’ bankruptcy filing adds another layer of complexity to the evolving crypto landscape, emphasizing the interconnected nature of digital assets in the market.