In a significant development in the cryptocurrency landscape, Michael Novogratz’s investment firm, Galaxy Digital, has agreed to a $200 million settlement concerning the promotion of the now-collapsed cryptocurrency, Terra (LUNA). This case sheds light on the critical importance of transparency and accountability in the ever-evolving world of digital currencies.
According to documents filed by the New York Attorney General’s office on March 24, Galaxy Digital had acquired 18.5 million LUNA tokens at a significant 30% discount while simultaneously promoting them, without adhering to necessary disclosure regulations. The filings underscore the meteoric rise of LUNA’s market price from $0.31 in October 2020 to $119.18 in April 2022, during which Galaxy allegedly profited hundreds of millions of dollars.
As part of the settlement agreement, Galaxy Digital is mandated to pay the $200 million in monetary relief spread over three years: an immediate payment of $40 million, followed by $40 million within one year, and two additional payments of $60 million in the subsequent years.
Concerns Over Misinformation
The Attorney General’s report included serious allegations against Galaxy Digital and Novogratz of disseminating misleading information regarding Terra’s use cases. Reports indicated that the firm claimed the South Korean payments application Chai was built on the Terra blockchain, which was later established to be untrue.
The misleading claims were not only contained within internal communications but also featured prominently in a press release sent to Bloomberg that touted Chai’s user base and transaction volume. The filing called out Galaxy for failing to independently verify such representations, thereby misleading investors.
The Collapse of Terra and Its Aftermath
The dramatic fall of Terra and its algorithmic stablecoin, TerraUSD (UST), in May 2022 highlighted the vulnerabilities within the crypto ecosystem. The breakdown occurred when a prominent investor sold a significant amount of UST, triggering panic across the market, which caused UST to deviate from its expected dollar peg.
The inherent mechanism designed to stabilize UST was flawed; it mandated minting new LUNA tokens to buy back UST, leading to a significant inflation of LUNA’s supply and downward pressure on its price. As reported by Cointelegraph, the subsequent rapid depreciation of both UST and LUNA resulted in billions being wiped from market capitalization and contributed to a broader downturn in the cryptocurrency market.
Even today, the lessons from Terra’s collapse resonate within the crypto community, as fears persist regarding new projects that echo the mechanisms that led to this event.
In conclusion, the Galaxy Digital settlement serves as a crucial reminder of the necessity for due diligence and ethical marketing practices in the crypto industry. As the market continues to mature, stakeholders must prioritize transparency and accountability to protect investors and ensure the stability of this innovative but volatile financial landscape.
