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A bankruptcy court in the U.S. has approved a settlement between Terraform Labs and the bankrupt hedge fund Three Arrows Capital (3AC) regarding a $1.3 billion claim tied to the 2022 collapse of the Terra/LUNA cryptocurrency.
Three Arrows Capital (3AC), a cryptocurrency hedge fund based in Singapore and founded by Su Zhu and Kyle Davies, filed for court-ordered liquidation in June 2022 after suffering billions in losses — much of it linked to the Terra/LUNA crash.
The ruling, issued by Judge Brendan L. Shannon in the District of Delaware, determines how 3AC's claim will be treated in Terraform Labs' ongoing Chapter 11 bankruptcy.
The court agreed that 3AC's losses will be classified as a "Crypto Loss Claim," a special type of claim for investors who lost digital assets within the Terra ecosystem, rather than as general unsecured debt.
This classification is significant because it places 3AC in the same category as other crypto investors who lost money when UST, Terra's algorithmic stablecoin, and its token LUNA crashed in 2022, resulting in a nearly $60 billion market value wipeout.
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The agreement ends months of dispute between Todd Snyder, the plan administrator for Terraform, and 3AC's liquidators, who represent creditors in the fund's own bankruptcy proceedings.
Under the court order, 3AC will withdraw its original claim but may refile portions of it later if the court decides that some damages do not fall under the rules of "Crypto Loss Claims."
Earlier this year, a Delaware judge approved procedures allowing investors to seek compensation from Terraform Labs.
Claimants were required to file their claims online by May 16, 2025, declaring losses related to cryptocurrencies either created by Terraform or held within its ecosystem that became worthless after the second “de-peg” of its stablecoin from the U.S. dollar.
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Terraform's bankruptcy plan, confirmed in September 2024, created a Wind-Down Trust to oversee the liquidation of assets and distribute funds to creditors. The company continues to face ongoing legal challenges from the Securities and Exchange Commission (SEC).
The latest ruling represents one of the first coordinated steps between two major crypto bankruptcies — Terraform Labs and Three Arrows Capital — and may help shape how similar disputes are handled in future digital-asset failures.
