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Class Action progresses against Terraform Labs despite arbitration attempt

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The class-action lawsuit against Terraform Labs and its co-founders, including Do Kwon, is progressing as the High Court dismissed an appeal filed by the defendants on Thursday, November 30, 2023.

Legal proceedings, initiated in September 2022, have advanced beyond any other similar class-action suit involving Terraform globally. This milestone highlights the exceptional and noteworthy nature of the case’s advancement.

The legal action stems from the collapse of Terra USD (UST) in May 2022, a significant event in the cryptocurrency market that resulted in the loss of nearly half a trillion USD in market value. 

On May 7th, 2022, two traders broke UST’s peg, causing the stablecoin to lose its value. Terraform Labs attempted to restore the peg by purchasing $2 billion UST, but this only provided temporary relief.

As the sell-off continued, the price of UST and its sister token LUNA plummeted. The uncollateralized design of UST likely made it more vulnerable than other types of stablecoins, and the ongoing sell-off depleted those funds, leading to a death spiral effect.

The collapse of UST and LUNA triggered a devastating “death spiral” that rendered the dollar-pegged asset worthless. On May 12th, 2022, the Terra network officially ceased operations due to the sharp decline in LUNA’s price, which posed a significant threat to the network’s security. As a result, numerous everyday investors lost their life savings.

The collapse of Terra USD can be attributed to various factors, including a flawed tokenomic model, insufficient diverse utilities supporting the ecosystem, and mounting concerns regarding the system’s sustainability.

In response to the lawsuit against the company, Terraform sought to dismiss the case by invoking an arbitration clause found in its website’s terms of use. 

However, the court rejected this argument, stating that the arbitration agreement lacked sufficient establishment.

Furthermore, the court noted that the terms of use were not prominently displayed, and there was insufficient effort to draw users’ attention to these clauses.

Justice Hri Kumar Nair, presiding over the appeal, expressed disappointment regarding the delayed jurisdictional challenge. He emphasized the importance of adhering to the expediting Rules of Court 2021. 

Despite this setback, Terraform, along with its co-founders Do Kwon and Nikolaos Alexandros Platias, will proceed with the class-action suit in Singapore.

Read also; Judge raises concerns over Celsius’ Bitcoin mining transition

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