In a significant legal battle, the bankruptcy estate of Terraform Labs has filed a $4 billion lawsuit against Jump Trading, accusing the firm and its executives of secretly manipulating the Terra ecosystem for profit during its collapse. The case seeks to establish responsibility beyond that of Terraform’s founder, Do Kwon, who has already faced severe legal consequences.
The Collapse that Shook Crypto
The lawsuit sheds light on the dramatic collapse of TerraUSD and its sister token, LUNA, in 2022. Designed as an algorithmic stablecoin, TerraUSD was supposed to maintain a 1:1 peg to the US dollar through market incentives rather than relying on reserves. When this mechanism failed, confidence in the system plummeted overnight.
Within days, LUNA spiraled into a catastrophic decline, erasing over $40 billion in market value and sending shockwaves through the cryptocurrency industry. The fallout contributed to subsequent failures of major cryptocurrency lenders and hedge funds, exacerbating an ongoing crisis of trust in the digital asset sector.
Terraform Labs filed for bankruptcy in early 2024, eventually agreeing to pay approximately $4.5 billion to settle civil lawsuits brought by the U.S. Securities and Exchange Commission (SEC). Meanwhile, co-founder Do Kwon, who pleaded guilty to criminal charges, has recently been sentenced to 15 years in prison.
Allegations of Concealed Agreements
According to the bankruptcy estate, the situation became more complex and involved multiple parties. Todd Snyder, the court-appointed liquidator of Terraform, claims that Jump Trading played a hidden yet pivotal role in supporting Terra long before its final collapse.
Legal documents allege that Jump and Terraform entered into undisclosed agreements as early as 2019. Under these agreements, Jump reportedly gained access to millions of LUNA tokens at significantly reduced prices, allowing the firm to purchase LUNA for around $0.40 per token when the market price later soared above $110.
These arrangements purportedly set the stage for substantial profits when LUNA values skyrocketed. Furthermore, the lawsuit references an informal “gentlemen’s agreement” between Jump and Terraform, suggesting that Jump secretly committed to supporting TerraUSD during times of stress, while Terraform publicly attributed any recovery to the strength of its algorithm.
This alleged collaboration was reportedly concealed to evade regulatory scrutiny and protect market perception.
Warning Signs of May 2021
The lawsuit emphasizes key events that occurred in May 2021 when TerraUSD briefly lost its peg to the dollar. At the time, Terraform claimed that the recovery of the stablecoin demonstrated the resilience of its design. However, the lawsuit now presents a different narrative.
Snyder contends that Jump intervened by purchasing large quantities of TerraUSD, masking fundamental weaknesses within the system. This deception led investors to mistakenly believe that the mechanism was functioning as intended.
Following this incident, reports suggest that Jump negotiated the removal of vesting and lock-up clauses in its contracts, allowing the firm to receive its monthly LUNA allocations and sell them immediately. This maneuver is said to have intensified selling pressure, positioning Jump to exit profitably as risks escalated.
Jump’s Defense
Jump Trading has vehemently denied all allegations and aims to defend itself vigorously in court. A spokesperson for the firm characterized the lawsuit as an attempt to divert responsibility from Terraform Labs and Do Kwon.
Earlier in 2024, the SEC charged Jump’s crypto unit, Tai Mo Shan, with intervening during the May 2021 price decline and subsequently profiting from the released LUNA sales. Tai Mo Shan settled these claims for approximately $123 million without admitting wrongdoing.
During SEC interrogations, Snyder and former Jump Crypto president Kanav Kariya frequently invoked their Fifth Amendment rights. Snyder argues that this ongoing lawsuit is fundamentally about accountability — asserting that the courts must determine who knew what, who intervened, and who ultimately profited from the rise and fall of Terra.
Meet William, a proud Bethel University alumnus with a fervent passion for lifestyle and culture topics. His keen interest doesn’t stop there; he’s also deeply engrossed in current events of all kinds. William dedicates himself wholeheartedly to this site, thriving on the collaborative energy he shares with Suzanne, his long-standing partner in crime.
Having navigated their university courses side by side for years, their teamwork on the site is nothing short of dynamic. Together, they bring a unique blend of insights, proving that two heads are indeed better than one in delivering compelling content.
