Source: Cointelegraph Original: "{title}"

Michael Novogratz's cryptocurrency investment firm Galaxy Digital has agreed to pay $200 million to settle lawsuits related to the promotion of the now-collapsed cryptocurrency Terra (LUNA).

According to documents submitted by the New York Attorney General's office on March 24, Galaxy Digital purchased 18.5 million LUNA tokens at a 30% discount while promoting these tokens and selling them without adhering to disclosure rules. The documents state:

"Ultimately, Galaxy helped a little-known token increase its market price from $0.31 in October 2020 to $119.18 in April 2022, while profiting hundreds of millions of dollars."

As part of the settlement agreement, Galaxy will pay $200 million in compensation over three years: $40 million within 15 days, another $40 million within a year, and then $60 million in the second and third years, respectively.

The Attorney General's documents also accuse Galaxy Digital and Novogratz of spreading false statements about Terra's usage. Specifically, the company allegedly claimed that the South Korean payment app Chai was built on the Terra blockchain, which is not accurate.

This claim was also included in a press release sent to Bloomberg, emphasizing that the app "has over 2 million users and generates $1.2 billion in annualized transaction volume." The press release stated:

"These statements are false. They are based on statements from Kwon and Terraform to Galaxy, but Galaxy failed to independently verify this information."

After the collapse of Terra, Galaxy Digital's Novogratz mentioned the usage of Terra in Chai. Source: Galaxy Digital

Terra and its algorithmic stablecoin TerraUSD (UST) experienced a dramatic collapse in May 2022 due to the failure of the mechanism that maintained UST's peg to the dollar. This event occurred after a whale holder sold a large amount of UST.

The massive sell-off triggered market panic, causing UST to deviate from its expected value. The mechanism designed to stabilize UST involved minting new LUNA tokens to buy back UST, which led to a significant increase in LUNA's supply, putting immense downward pressure on LUNA's price.

As Cointelegraph reported at the time, if LUNA's market capitalization fell below UST's market capitalization, there would not be enough funds to maintain the stablecoin's peg. As the assets backing the stablecoin depreciated with the continuous increase in supply, these assets entered a self-reinforcing downward spiral, causing both assets to lose nearly all their value within hours.

This led to the evaporation of tens of billions of dollars in market capitalization and triggered a broader decline in the cryptocurrency market at the time. The memory of this event remains fresh, as the recently launched high-yield algorithmic stablecoin by Sonic blockchain has sparked panic due to its perceived similarity to it.

Related: EU regulators demand insurance companies provide 100% guarantees for cryptocurrencies due to volatility.

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