Terraform Labs, a company known for creating the Terra blockchain, has taken legal action against Jump Trading, a large trading firm. Terraform Labs claims Jump Trading secretly supported their cryptocurrency, TerraUSD, misled people about its stability, and made big profits during the system’s collapse. Terraform’s court-appointed administrator, Todd Snyder, is demanding $4 billion in damages. He is also suing Jump Trading’s co-founder, William DiSomma, and Kanav Kariya, who started as an intern but later became the head of Jump Trading’s crypto-trading branch.
Details About the Lawsuit
The case was filed recently in the U.S. District Court for the Northern District of Illinois. According to a report by The Wall Street Journal, Terraform Labs accuses Jump Trading of making illegal profits from their partnership, while average investors lost money. The legal papers also mention that the U.S. Securities and Exchange Commission (SEC) found Jump Trading had made about $1 billion by selling another cryptocurrency, Luna.
Snyder said that Jump Trading took advantage of Terraform Labs by manipulating their system and hiding critical information. He referred to the collapse of the Terra system as one of the biggest failures in the history of cryptocurrencies.
Allegations About Unfair Deals
The complaint claims that starting in 2019, Terraform Labs and Jump Trading made secret agreements. These agreements allowed Jump Trading to buy millions of Luna tokens at a very low price. For example, Jump Trading reportedly purchased the tokens for just 40 cents each and later sold them when the price climbed to over $110.
The lawsuit also mentions a private “gentlemen’s agreement” between the two firms. This agreement ensured that Jump Trading helped keep TerraUSD’s value equal to one U.S. dollar, a concept known as “pegging.” They allegedly did this by buying large amounts of TerraUSD stablecoins when its price fell, while publicly giving credit to Terraform Lab’s algorithms instead. Keeping the value of TerraUSD stable was important since it aimed to act like a digital version of the U.S. dollar.
What is TerraUSD and Why Is It Important?
TerraUSD, also called UST, was a type of cryptocurrency known as a stablecoin. Unlike regular cryptocurrencies like Bitcoin, stablecoins are supposed to hold a steady value. Terraform Labs used Luna as a kind of backup to stabilize TerraUSD. But when TerraUSD lost its $1 value, or “dollar peg,” the whole system failed, and Luna became almost worthless. In May 2022, this crash caused $40 billion in losses to investors worldwide.
More Trouble: Alleged Bitcoin Transfers
The lawsuit claims that during another crisis in May 2022, almost 50,000 Bitcoins were transferred to Jump Trading without a written agreement. This transfer happened through the Luna Foundation Guard, a non-profit organization meant to protect TerraUSD’s price stability. At the same time, it states that William DiSomma, co-founder of Jump, contacted other crypto trading firms to try and find funds for a bailout. These actions, according to Snyder, pushed the whole Terra system toward collapse even faster.
Jump Trading Responds
A representative from Jump Trading has denied all these accusations. The spokesperson said the lawsuit is Terraform Labs’ attempt to shift blame for the crimes committed by its own founder, Do Kwon. Jump Trading plans to strongly defend itself, calling Terraform’s claims “baseless.”
Background: Terraform Labs’ Collapse
Terraform Labs faced a major downfall in 2022 after TerraUSD, their stablecoin, lost its dollar value. This crash caused Luna to lose almost all of its worth and wiped out around $40 billion in total value across the cryptocurrency market. After this disaster, Terraform Labs declared bankruptcy in January 2024 and agreed to pay the SEC $4.5 billion to settle legal disputes. Meanwhile, Do Kwon, the company’s founder, was sentenced to 15 years in prison for criminal activities.
This lawsuit marks one of the latest developments in the aftermath of the Terra collapse, as authorities and companies seek accountability for the tremendous losses suffered by investors and the wider financial ecosystem.