Jane Street faces claims of insider trading that sped up Terraform's 2022 collapse

• Terraform Labs' bankruptcy administrator has sued high-frequency trading firm Jane Street, alleging it used insider information to front-run trades that accelerated the 2022 collapse of TerraUSD and luna.
• The lawsuit claims a Jane Street-linked wallet withdrew 85 million TerraUSD from Curve3pool minutes after Terraform quietly pulled 150 million UST, helping trigger the stablecoin's loss of its dollar peg and a $40 billion market wipeout.
• Jane Street has denied the allegations as a "desperate" and "baseless" attempt to extract money.

High-frequency trading powerhouse Jane Street is accused of insider trading that accelerated the downfall of crypto project Terraform Labs in 2022, which destroyed billions in investor wealth.

Todd Snyder, the administrator winding down Do Kwon’s Terraform Labs, has sued Jane Street, seeking damages from its co-founder Robert Granieri, and employees Bryce Pratt and Michael Huang, according to a report by Wall Street Journal.

Snyder has accused the trading firm of using material nonpublic information from Terraform insiders to front-run trading that sped up Terraform’s demise. That means trading on private, price-swinging facts before they're public and then jumping ahead of big orders to pocket profits first.

"Jane Street abused market relationships to rig the market in its favor during one of the most consequential events in crypto history,” Snyder said in a statement.

“On behalf of injured parties, we will pursue all avenues supported by the facts and the law against those who exploited their position and reaped substantial profits at the expense of Terraform Labs’ creditors.

Terraform Labs was a Singapore-based blockchain company founded in 2018 by Do Kwon and Daniel Shin, best known for creating the Terra blockchain, it's native token luna and the algorithmic stablecoin TerraUSD (UST).

The company filed for bankruptcy in January 2024, with a wind-down trust taking control later that year. Do Kwon was sentenced 15-year prison after pleading guilty to two criminal counts in August. 

The stablecoin lost its 1:1 USD peg in May 2022, and within days, the Luna token also crashed to zero. The result: An astonishing $40 billion in market cap evaporated in just one week, leading to massive wealth destruction worldwide. It also led to collapse of other crypto companies who had an exposure to the project.

It all started on May 7, when Terraform quietly withdrew 150 million TerraUSD from the decentralized stablecoin-focused trading platform Curve3pool. The lawsuit alleges that within 10 minutes, before Terraform informed the public of anything, a wallet linked to Jane Street also withdrew 85 million TerraUSD from the same pool. This supposedly triggered the market panic.

Kwon clarified on the following day that the 150 million withdrawals was mean to move coins to a new liquidity pool for stablecoins, but it was too late.

Then, On May 9, with TerraUSD starting to slip, Jane Street's Pratt fired off a group chat to Kwon and team, floating offers to buy bitcoin or Luna. Kwon shot back that Jump's co-founder Bill DiSomma should have clued them in earlier about Terraform's fundraising push.

Jan Street has called the lawsuit an attempt to extract money from the trading firm while vowing to defend vigorously against "baseless, opportunistic claims."

"This desperate suit is a transparent attempt to extract money when it is well-established that the losses suffered by Terra and Luna holders were the result of a multibillion-dollar fraud perpetrated by the management of Terraform Labs,” said a spokesman for Jane Street."

• Crypto derivatives such as ETF-linked options and futures could rival or exceed spot trading volumes on major global exchanges.
• As derivatives activity scales on regulated venues, volatility pricing in U.S. markets may play a larger role in setting bitcoin’s global price.
• The shift would further consolidate price discovery within regulated futures markets, extending their influence over the broader crypto ecosystem.

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