Galaxy Digital’s $200 Million Settlement Over Terra Promotion
In a significant development within the cryptocurrency sector, Michael Novogratz’s Galaxy Digital has agreed to pay a $200 million settlement to the New York Attorney General’s Office. Galaxy Digital’s $200 million settlement follows allegations that the firm improperly promoted the now-defunct cryptocurrency Terra (LUNA), whose catastrophic collapse sent shockwaves through the entire crypto market.
Details of the Settlement
The legal documents reveal that Galaxy Digital acquired a substantial amount of LUNA tokens—18.5 million—at a 30% discount. Afterward, they actively promoted these tokens before offloading them, all while allegedly failing to adhere to necessary disclosure protocols. Consequently, this action is said to have significantly inflated the market price of LUNA from $0.31 in October 2020 to a peak of $119.18 by April 2022, yielding substantial profits for Galaxy Digital.
As a result, as part of the settlement terms, Galaxy Digital will disburse $200 million over three years. This includes an initial payment of $40 million within 15 days, followed by another $40 million after a year, and two subsequent payments of $60 million each over the second and third years.
Accusations of Misinformation
The New York Attorney General’s filing also accuses Galaxy Digital and Novogratz of spreading misleading information about Terra’s utility. One example points to their claim that the South Korean payment app Chai was built on the Terra blockchain—a claim that turned out to be false. They included this misinformation in a press release sent to major news outlets, including Bloomberg, where they exaggerated Chai’s user base and transaction volume using unverified claims from Terraform and its founder, Do Kwon.
The Catastrophic Collapse of Terra
The downfall of Terra and its associated stablecoin, TerraUSD (UST), is a stark reminder of the volatility and risks inherent in the cryptocurrency market. In May 2022, a significant sell-off of UST by a major holder triggered a market panic, leading to a deviation from its peg to the US dollar. The intended stabilizing mechanism, which involved minting new LUNA tokens to purchase UST, backfired—resulting in hyperinflation of LUNA’s supply and a drastic plunge in its value.
This event not only erased billions in market capitalization but also instigated a widespread downturn across the crypto market. The incident has left a lasting impact, with the crypto community remaining wary of similar high-yield algorithmic stablecoins, as evidenced by the cautious reception of Sonic blockchain’s recent stablecoin launch.
Broader Implications for the Crypto Market
The Galaxy Digital settlement underscores the critical need for transparency and regulatory compliance in the crypto sector. It serves as a cautionary tale for other firms in the space about the consequences of neglecting due diligence and proper disclosures in their operations.
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Additionally, the unfolding legal scenarios around cryptocurrency, such as Terra’s Do Kwon’s legal challenges, continue to shape the regulatory framework and influence market dynamics, emphasizing the importance of staying informed and agile in this rapidly evolving field.
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