Galaxy Digital: $200M Terra Fallout Settlement
Big news in the crypto world: Michael Novogratz’s investment firm, Galaxy Digital, has agreed to a $200 million settlement. This hefty payout is connected to accusations that they promoted Terra (LUNA), the cryptocurrency that famously crashed and burned.
According to official documents from the New York Attorney General’s Office, filed on March 24th, the story goes like this: Galaxy Digital snapped up a massive 18.5 million LUNA tokens at a sweet 30% discount. Then, they allegedly went on to promote these tokens before selling them off, all without playing by the rules of disclosure. The legal filing spells it out:
“Essentially, Galaxy played a key role in boosting a relatively unknown token’s market value from a mere $0.31 in October 2020 all the way up to a staggering $119.18 by April 2022, racking up profits in the hundreds of millions of dollars in the process.“
Now, to make things right, Galaxy has to cough up that $200 million in financial compensation over the next three years. The payment schedule is broken down as follows: $40 million within the next 15 days, another $40 million within a year, and then two more installments of $60 million each in the second and third years.
Related: A beginner’s guide on algorithmic stablecoins
Galaxy Digital reportedly spread fake news
But that’s not all. The legal documents also accuse Galaxy Digital and Novogratz of spreading misleading information about how Terra was actually being used. Specifically, they’re called out for allegedly claiming that Chai, a popular South Korean payment app, was built using the Terra blockchain – which just wasn’t true.
This inaccurate claim even made its way into a press release sent to Bloomberg, bragging that the app “hosts over 2 million users and generates $1.2 billion in annualized transaction volume.” However, the release itself admits:
“These statements were simply false. They were based on information given to Galaxy by Kwon and Terraform, but here’s the kicker – Galaxy didn’t bother to check if it was actually true.“
Even after Terra’s dramatic collapse, Galaxy Digital’s Novogratz was still mentioning Terra’s usage in Chai. Source: Galaxy Digital
Related: Terra’s Do Kwon’s US court hearing delayed as prosecutors review a swath of new evidence
Terra’s collapse and market fallout
Let’s rewind a bit and remember what happened with Terra. Both Terra and its algorithmic stablecoin, TerraUSD (UST), experienced a catastrophic meltdown back in May 2022. This all started when the system designed to keep UST pegged to the US dollar broke down. It kicked off with a major player in the market selling off a huge chunk of UST.
This massive sell-off triggered panic in the market, and UST started to lose its grip on that $1 peg. The stabilization mechanism, which was supposed to mint new LUNA tokens to buy up UST and keep the price steady, backfired spectacularly. It led to a massive flood of new LUNA tokens, causing hyperinflation and sending LUNA’s price plummeting.
As we reported here at Cointelegraph at the time, the critical issue was that if LUNA’s market value dropped below UST’s, there simply wouldn’t be enough money to maintain the stablecoin’s peg. With the asset supposedly backing the stablecoin losing value while its supply exploded, it became a vicious cycle. Both UST and LUNA spiraled downwards, losing almost all their value in a matter of hours.
The fallout was immense. Billions of dollars in market value vanished, and it sparked a widespread downturn across the entire cryptocurrency market. The memory of this disaster is still fresh, and it’s why the recent unveiling of a high-yield algorithmic stablecoin by the Sonic blockchain has been met with skepticism and fear, with many pointing out the uncomfortable similarities.
Magazine: Bitcoiner sex trap extortion? BTS firm’s blockchain disaster: Asia Express
