Zodia Custody and Blockdaemon Partner on Institutional Staking

Singapore’s Terraform Labs, the company founded by incarcerated crypto entrepreneur Do Kwon, has filed for Chapter 11 bankruptcy protection as a mechanism to shield itself from potential severe penalties in the U.S. Securities and Exchange Commission's (SEC) securities fraud lawsuit.Photo by Melinda Gimpel on UnsplashPursuing an appealThe bankruptcy filing, submitted on Tuesday in the U.S. Bankruptcy Court for the District of Delaware, aims to allow Terraform Labs to pursue an appeal against the SEC's allegations. In the filing, Terraform Labs CEO Chris Amani emphasized the critical nature of the bankruptcy protection for the company's ongoing operations, preservation of value for creditors, including the Terra community, and the pursuit of an appeal against the SEC enforcement action. Amani expressed concerns that, without Chapter 11 protection, the company could face liquidation after the trial, forfeiting its right to appeal and leading to disastrous consequences for its business. Having acted as Terraform’s chief operating officer earlier in 2023, last July Amani was appointed as the firm’s CEO. Protection afforded by Chapter 11The estimated assets and liabilities of Terraform Labs fall between $100 million and $500 million, as disclosed in the firm’s bankruptcy filing earlier this month. Amani highlighted the potential financial strain resulting from a substantial money judgment, indicating that the company might not be able to satisfy such a judgment or post the necessary supersedeas bond for an appeal, a bond that must be provided by a petitioner who attempts to have a judgment set aside, without the protection afforded by Chapter 11. The SEC charged Terraform Labs and former CEO Do Kwon with securities fraud in February 2023, accusing them of orchestrating a "multi-billion dollar crypto asset securities fraud." The Commission claimed the company raised billions from investors through unregistered transactions, offering an interconnected suite of crypto asset securities. Terraform Labs disputes the SEC's summary judgment decision, asserting that the cryptocurrency tokens in question are not securities under the Acts and that the SEC's jurisdiction is not applicable. The potential consequences of liquidation extend beyond the company itself, impacting hundreds of thousands of Luna cryptocurrency holders, the same individuals the SEC purportedly seeks to protect. Luna operates on the Terra blockchain maintained by Terraform Labs. Terraform Labs, known for the algorithmic stablecoin TerraUSD and its sister cryptocurrency Luna, filed for bankruptcy protection in the wake of the infamous collapse of both in May 2022. The SEC's case stems from that $40 billion collapse of TerraUSD and a previous version of Luna, accusing Terraform Labs and Kwon of misleading investors about the stability of TerraUSD. Kwon was arrested in March of last year in Montenegro for using false documents. He is currently detained in Montenegro, following his attempt to travel to Dubai with a fake Costa Rican passport. The Terraform founder is currently awaiting extradition to either the United States or South Korea. Both Do Kwon and Terraform Labs deny committing fraud, with the SEC trial scheduled to commence in New York in late March.   

The Hashgraph Association, a non-profit organization that focuses on building an ecosystem of startups and enterprises relative to the use of the Hedera Hashgraph public ledger, has announced that it intends to explore use cases for the technology in Qatar. Hedera Hashgraph was first created in 2015 by Leemon Baird and Mance Harmon. The network is designed such that anyone can transact using it and deploy applications on it. However, governance is separated from consensus, with a group of businesses overseeing the network protocol.Photo by Hongbin on UnsplashFive key use casesIn a LinkedIn post published on September 19, the Hashgraph Association outlined that within the next 12 months, it would explore the implementation of five key use cases relative to the Hashgraph network in Qatar, collaborating with stakeholders within the Middle Eastern country in order to do so. First on its list is the tokenization of equities. During the TOKEN2049 event in Singapore earlier this week, the HBAR Foundation, another entity which supports the creation of Web3 communities on the Hedera network, launched the Hedera Asset Tokenization Studio.  According to the HBAR Foundation, the initiative “enables the seamless issuance and management of tokenized bonds and equities on the Hedera network.” The move, when considered in the context of the Hashgraph Association’s intentions relative to the pursuit of the tokenization of equities as a use case in Qatar, demonstrates that the distributed ledger technology (DLT) network’s most prominent stakeholders are homing in on this particular use case in furthering the use of the network.  Dr. Sabrina Tachdjian, the HBAR Foundation’s head of fintech and payments, stated that the  Asset Tokenization Studio will lower technical barriers to the tokenization of bonds and equities, along with the recording of their underlying data on the ledger. Sukuk tokenizationOther use cases up for exploration in Qatar are real estate tokenization and sukuk tokenization. A sukuk is an Islamic financial certificate. It’s a bond-like financial instrument which is sharia-compliant. The world’s first tokenized sukuk, linked to a sovereign instrument, was created in Malaysia in 2023.  Fusang Exchange listed the product, as a digitized version of a sukuk issued by the International Islamic Liquidity Management Corporation (IILM), represented via an ERC-20 token. Shariah-compliant finance represents a $4 trillion opportunity. Additionally, the Hashgraph Association is looking to exploit the carbon credit sector as a use case, while also looking towards the use of the Hedera Hashgraph ledger for the purpose of consumer engagement and loyalty programs. Digital assets frameworkOn September 1, the Qatar Financial Centre (QFC) announced that the Qatar Financial Centre Authority (QFCA) and the Qatar Financial Centre Regulatory Authority (QFCRA) had launched the QFC digital assets framework. The Hashgraph Association believes that the regulations strengthen its role in “fostering innovation and trust within the digital assets ecosystem, further solidifying the region’s position as a global leader in fintech.” In May, the Hashgraph Association announced at the Qatar Economic Forum a $50 million partnership with the QFC, with the goal of creating a digital assets venture studio in Qatar to support solutions built on the Hedera network.

Korea considers legal recognition of virtual assets as trust assets for investor protectionSouth Korea’s Ministry of Justice (MOJ) is assessing whether customers’ virtual assets on cryptocurrency exchanges should be legally recognized as trust assets. This classification would give users priority in claiming their virtual assets in case of an exchange’s bankruptcy, thus strengthening investor protection. There’s a noted concern about potential disputes in such bankruptcy situations, as users’ digital assets are typically considered to be in the custody or storage of these platforms.Photo by Daniel Bernard on UnsplashLegal study by Seoul National UniversityAccording to a Tuesday report by local news outlet ChosunBiz, citing industry and legal sources, the MOJ has initiated a legal study on this subject. The research is being conducted by the Seoul National University R&DB Foundation, which started the project earlier this month.Through this study, the MOJ is expected to examine the legal classification of cryptocurrency as property. This review is significant because, for cryptocurrencies to be held in a trust, they must be legally recognized as property. Meanwhile, the upcoming Virtual Asset User Protection Act, set to come into effect next July, mandates that only cash deposits made by users be segregated from the assets of the exchange itself.In Korea, under the current provisions of the Capital Markets Act, virtual assets are not recognized as being held in a trust. Instead, staked cryptocurrencies are seen as being under custodial management or storage. In such arrangements, only a debtor-creditor relationship concerning virtual assets is acknowledged, differing from the legal framework of a trust.Prioritization of rightsIf a cryptocurrency exchange becomes insolvent and enters liquidation, the current legal framework could end up prioritizing the rights of the exchange’s creditors or shareholders over those of the crypto investors. This situation has faced criticism for its inadequate protection of investors. However, if the crypto assets were considered to be held in trusts, it would enable users to acquire “rights to foreclose outside bankruptcy.” This means users would have the right to receive priority reimbursement for their crypto assets, offering them a higher level of protection in the event of an exchange’s bankruptcy.Regarding this development, an official from the MOJ said that while the study is a fundamental legal review focused on exploring ways to protect users through the application of trusts for various cryptocurrency transactions, including those involving decentralized finance (DeFi), it is too early to provide specific details at this stage.