It has been described as the “Lehman Brothers” event of the crypto world and heralded to bring forth a cryptocurrency winter. The collapse of TerraUSD, one of the largest algorithmic stablecoins has sent shockwaves across the world. The stablecoin was not backed by fiat currency or financial assets, but by another token, Luna.

TerraUSD was pegged to the USD such that if TerraUSD ever falls below USD 1, an investor can trade the stablecoin for an amount of Luna tokens worth up to USD 1. The Luna token, the market value of which dropped by over 98% within one day was in turn backed up by reserve Bitcoin which has been sold since the start of the crisis, leaving many Luna investors seeking recourse.

Do you still have the right to sue?

It was initially thought that the plan to revive Luna was to have a “hard fork” by splitting the existing blockchain into two, although Binance CEO Changpeng Zhao has openly commented that “forking does not give the new fork any value”.

Terra has clarified that the revival plan instead is to create a new blockchain or what was referred to as a “genesis” blockchain. There was a global vote last week where about 65% of Luna holders voted in favour of creating a new Terra blockchain. It is reported by Fortune that there were 40,374,458 votes constituting about 13.2% of Luna holders who voted against this, and that 20.98% or 64,192,319 Luna holders abstained from voting (or probably did not participate in the vote). With the vote, investors are now looking to receive a new set of Luna tokens on a new blockchain. Users will be airdropped new Luna tokens in place of their old ones. TerraUSD no longer exists on the new blockchain but is retained on the old one. Based on current distribution the community pool and pre-crisis Luna holders would be airdropped 30% of their holdings with the rest to be vested at later junctures.

It is likely that any court of law would want to know what the legal implications of this vote and this new blockchain are, including whether the vote, the creation of this “genesis” blockchain and distribution of new Luna tokens mean that Luna holders as a whole have waived their right to claim for losses. It would not be surprising to see challenges made to question the legal basis of the vote, although it would be impossible to reverse the creation of the new blockchain and its consequential effects given that the new tokens can be traded on exchanges.

In addition, an issue that is likely to be key is the extent in which Luna holders can be said to have suffered losses given that they are now issued new tokens on a new blockchain. An investor claiming losses would likely have to show that the present and quite possibly the future value of the newly issued tokens, including those that are not yet vested, are worth less than the old Luna tokens. Luna investors might be faced with a complex battle over the valuation of the old and new Luna tokens.