Terraform Labs Wins Court Nod for $1.3B Crypto Loss Deal with 3AC

TLDR

• A U.S. bankruptcy court has approved the $1.3 billion settlement between Terraform Labs and Three Arrows Capital.
• The court classified 3AC’s losses as a Crypto Loss Claim under Terraform Labs’ Chapter 11 bankruptcy.
• This classification places 3AC in the same category as other crypto investors affected by the Terra ecosystem collapse.
• The ruling ends a months-long dispute between Terraform’s plan administrator and 3AC’s liquidators.
• 3AC will withdraw its original claim but may refile parts of it depending on future court decisions.
• Terraform Labs’ confirmed bankruptcy plan includes a Wind-Down Trust to distribute assets to approved claimants.

A U.S. bankruptcy court has approved the $1.3 billion settlement between Terraform Labs and Three Arrows Capital (3AC). The ruling finalizes how 3AC’s losses from the 2022 Terra/LUNA collapse will be handled. Judge Brendan L. Shannon issued the decision in the Delaware District, resolving months of legal dispute.

Terraform Labs Settlement Recognized by U.S. Court

The bankruptcy court confirmed 3AC’s $1.3 billion claim as a “Crypto Loss Claim” in Terraform Labs’ Chapter 11 case. This classification means 3AC will be treated like other crypto investors impacted by the Terra collapse. The court order formalizes this agreement and resolves extended arguments between both parties.

The decision follows extensive negotiations between Terraform’s plan administrator and 3AC’s liquidators. They previously disagreed on the nature and value of 3AC’s losses. However, this ruling now provides clarity and a path for future resolution.

Judge Shannon approved the classification, stating it aligned with other claims from digital asset holders. This ruling avoids reclassifying 3AC’s claim as general unsecured debt. Instead, it ensures equal treatment among all impacted cryptocurrency investors.

Three Arrows Capital’s Claim Under the Crypto Loss Category

Three Arrows Capital, based in Singapore, filed for liquidation in June 2022 after massive losses from the Terra/LUNA crash. Its original claim against Terraform Labs centered on the devaluation of its digital assets. Under the new ruling, 3AC must withdraw that initial claim.

However, the order allows 3AC to refile portions of its losses if proven outside the defined crypto loss terms. This keeps the door open for additional claims as legal reviews continue. 3AC’s liquidators now act on behalf of its creditors within both bankruptcy cases.

The court’s decision ends a prolonged legal standoff between the two bankrupt entities. It also introduces a model for resolving complex crypto-related bankruptcy disputes. More importantly, it reflects the growing legal clarity around digital asset insolvencies.

Terraform Labs’ Wind-Down Trust and Ongoing Legal Steps

Terraform Labs’ bankruptcy plan, approved in September 2024, includes a Wind-Down Trust for distributing remaining assets. This trust will handle repayments to claimants, including investors like 3AC. The process prioritizes those who lost cryptocurrencies tied to the Terra ecosystem.

Investors were required to submit claims by May 16, 2025, through an official online portal. These filings cover losses in LUNA, UST, and other Terraform-linked digital assets. The plan ensures fair compensation based on verified crypto loss data.

Meanwhile, Terraform Labs remains under legal scrutiny from the Securities and Exchange Commission. Its case continues alongside asset liquidation and investor claims. This settlement marks a turning point in managing bankruptcy within digital asset ecosystems.

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