Galaxy Digital, the crypto investment firm headed by Michael Novogratz, has agreed to a $200 million settlement in relation to allegations that it irresponsibly promoted the cryptocurrency Terra (LUNA), which has since collapsed. Documents filed by the New York Attorney General’s Office on March 24 indicated that Galaxy Digital acquired 18.5 million LUNA tokens at a significant discount, and subsequently promoted these tokens prior to selling them, without appropriately disclosing their intentions.
According to the report, Galaxy Digital’s involvement assisted the initially low-profile Terra cryptocurrency to rocket from a lowly market price of $0.31 in October 2020 to an astoundingly high $119.18 in April 2022. The company is alleged to have profited in the hundreds of millions of dollars from this price increase.
In terms of the settlement, Galaxy Digital will distribute the $200 million payment over a three-year period. Galaxy will initially pay $40 million within 15 days of the agreement, followed by another payment of $40 million within the first year and then two consecutive payments of $60 million in the second and third years.
The lawsuit also asserts that Galaxy Digital and Novogratz circulated misleading information about Terra’s usage. Specifically, they falsely claimed that the South Korean payments application Chai was constructed on the Terra blockchain. This incorrect statement was also included in a press release sent to Bloomberg.
Underpinning the downfall of Terra and its algorithmic stablecoin, TerraUSD (UST), was a breakdown in the mechanism designed to keep UST’s peg to the US dollar in May 2022. This occurred when a large holder sold an extensive amount of UST, initiating a market panic leading UST to deviate from its expected value. The corrective measure to stabilise UST involved minting new LUNA tokens to buy back UST, which resulted in an extreme increase in LUNA’s supply and consequently a severe decrease in LUNA’s price. This ultimately led to a catastrophic loss in market capitalisation and triggered a wider detriment in the larger cryptocurrency market.