Terraform Labs liquidator sues Jump Trading for $4B in damages

• Terraform Lab’s liquidator alleges Jump secretly propped up UST while misleading markets.
• Court filings claim Jump gained billions through discounted Luna deals and early exits.
• Jump denies wrongdoing as US courts revisit accountability beyond Do Kwon.

Terraform Labs’ bankruptcy estate has filed a sweeping lawsuit against market-making giant Jump Trading, accusing it and its executives of secretly manipulating the Terra ecosystem and profiting while the project unravelled.

The administrator overseeing Terraform’s liquidation is seeking $4 billion in damages, arguing that responsibility for one of crypto’s most destructive failures extends well beyond founder Do Kwon.

A collapse that reshaped crypto

The lawsuit revisits the dramatic implosion of TerraUSD and its sister token, LUNA, in 2022.

Terraform Labs built TerraUSD as an algorithmic stablecoin designed to maintain a one-dollar peg through trading incentives, rather than relying on reserves.

When that mechanism failed, confidence evaporated almost overnight.

Within days, LUNA entered a death spiral and more than $40 billion in market value was erased, sending shockwaves through the digital asset industry.

The fallout contributed to subsequent failures at major cryptocurrency lenders and hedge funds, ultimately deepening a crisis of trust across the sector.

Terraform Labs filed for bankruptcy in early 2024 and later agreed to pay roughly $4.5 billion to settle civil charges brought by the US Securities and Exchange Commission (SEC).

Do Kwon, the company’s co-founder, who pleaded guilty to criminal charges, was recently sentenced to 15 years in prison.

Secret deals behind the scenes

According to the bankruptcy estate, the story did not end with Kwon.

Todd Snyder, the court-appointed administrator managing Terraform’s liquidation, alleges that Jump Trading played a hidden and central role in propping up Terra long before its final collapse.

Court filings claim that Jump and Terraform entered undisclosed agreements as early as 2019.

Under those deals, Jump allegedly gained access to millions of Luna tokens at steep discounts.

One agreement cited in the complaint allowed the firm to buy LUNA for about $0.40 per token when the market price later exceeded $110.

The administrator claims these arrangements laid the groundwork for massive profits once Luna surged.

The lawsuit also points to an informal “gentlemen’s agreement” between Jump and Terraform.

According to Snyder, Jump secretly committed to supporting TerraUSD’s peg during periods of stress while Terraform publicly attributed any recovery to the strength of its algorithm.

The arrangement was allegedly concealed to avoid regulatory and market scrutiny.

The May 2021 warning signs

The lawsuit places particular emphasis on events in May 2021, when TerraUSD briefly lost its dollar peg.

At the time, Terraform said the stablecoin’s recovery proved the resilience of its design. The lawsuit now alleges a different reality.

Snyder claims that Jump intervened by purchasing large amounts of TerraUSD, masking fundamental weaknesses in the system.

Investors, he argues, were misled into believing the mechanism had worked as intended.

After that episode exposed flaws in Terra’s design, Jump allegedly negotiated to remove vesting and lockup provisions from its contracts.

Those changes allowed the firm to receive monthly Luna allocations and sell them immediately.

The administrator says this intensified selling pressure and positioned Jump to exit profitably as risks mounted.

Jump pushes back

Jump Trading has categorically rejected the allegations, and it intends to defend itself vigorously.

A company spokesperson has described the lawsuit as an attempt to shift blame away from Terraform Labs and Do Kwon.

Earlier in 2024, the SEC accused Jump’s crypto unit, Tai Mo Shan, of intervening during the May 2021 depeg and later profiting from unlocked LUNA sales.

Tai Mo Shan settled those claims for about $123 million without admitting wrongdoing.

During SEC questioning, both DiSomma and former Jump crypto president Kanav Kariya repeatedly invoked their Fifth Amendment rights.

For Snyder, the current lawsuit is about accountability. Even with Kwon behind bars, he argues that courts must still determine who knew what, who intervened, and who ultimately profited from Terra’s rise and fall.

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