Terraform Labs Sues Jump Trading for $4 Billion Over TerraUSD Collapse

TLDR

• Terraform Labs’ bankruptcy administrator is suing Jump Trading for $4 billion in damages over the 2022 TerraUSD collapse
• Jump Trading allegedly entered secret agreements with Terraform Labs starting in 2019 to purchase Luna tokens below market value
• The lawsuit claims Jump helped prop up TerraUSD’s dollar peg in May 2021 but misled the public about why it recovered
• Jump allegedly profited around $1 billion from selling Luna tokens after the ecosystem collapsed
• Do Kwon was sentenced to 15 years in prison last week after pleading guilty to criminal charges

Todd Snyder, the court-appointed administrator handling Terraform Labs’ bankruptcy, filed a lawsuit seeking $4 billion in damages from Jump Trading. The suit names the high-speed trading firm along with co-founder William DiSomma and former crypto business president Kanav Kariya.

The lawsuit centers on the 2022 collapse of TerraUSD and Luna, which wiped out $40 billion in value. Terraform Labs filed for bankruptcy in January 2024 and later agreed to pay the Securities and Exchange Commission $4.5 billion in settlements.

Secret Agreements Dating Back to 2019

According to the lawsuit filed in U.S. District Court for the Northern District of Illinois, Jump Trading and Terraform Labs entered into undisclosed agreements starting in 2019. These deals allowed Jump to purchase millions of Luna tokens at prices far below market rates.

One agreement let Jump acquire Luna tokens for 40 cents each when the market price exceeded $110 per token. The lawsuit claims these arrangements eventually resulted in billions of dollars in gains for Jump.

Jump also entered what the suit calls a “gentlemen’s agreement” to help maintain TerraUSD’s peg to the dollar. The trading firm wanted to keep this arrangement secret to avoid regulatory scrutiny, according to court documents.

In May 2021, TerraUSD temporarily lost its dollar peg. Jump allegedly stepped in to support the stablecoin through purchases that restored its value.

The lawsuit claims Jump then misled the public by saying TerraUSD recovered because its algorithm worked. In reality, Jump’s purchases restored the peg, not the algorithmic mechanism as stated publicly.

After this incident exposed weaknesses in TerraUSD’s design, Jump negotiated to remove vesting requirements from its contracts. This allowed the trading firm to receive monthly Luna token installments and sell them immediately without lockup periods.

The Final Collapse

The May 2021 depeg led to the creation of Luna Foundation Guard. This reserve held bitcoin and other crypto assets to protect TerraUSD from future depegs.

When TerraUSD depegged again in May 2022, the foundation transferred nearly 50,000 bitcoin to Jump. The lawsuit states this transfer happened without any written agreement about how the bitcoin would be used.

The suit also alleges DiSomma contacted other crypto trading firms to seek bailout funding. Some aggressive trading firms used this information to trade against TerraUSD and Luna, which allegedly hastened Terraform’s downfall.

Jump made approximately $1 billion in profit by selling Luna, according to previous SEC court filings. So far, only about $300 million in assets has been recovered to compensate creditors.

In December 2024, Tai Mo Shan, a Jump Trading unit, paid $123 million to settle an SEC investigation into its dealings with Kwon and Terraform. When questioned by the SEC, both Kariya and DiSomma invoked their Fifth Amendment rights hundreds of times, according to the lawsuit. Kariya left Jump in 2024.

Kwon was sentenced to 15 years in prison last week after pleading guilty to two criminal counts in August.

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