- Terraform Labs’ liquidator alleges that Jump secretly supported UST while misleading the markets.
- Court documents claim Jump earned billions through discounted LUNA deals and early exits.
- Jump denies wrongdoing as U.S. courts weigh accountability beyond Do Kwon.
Terraform Labs’ bankruptcy estate has filed an extensive lawsuit against trading giant Jump Trading, accusing the firm and its executives of secretly manipulating the Terra ecosystem and profiting as the project unraveled.
The court-appointed administrator overseeing Terraform’s liquidation is seeking about $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 collapse of the algorithmic stablecoin TerraUSD (UST) and its sister token LUNA in 2022.
Terraform Labs designed TerraUSD as an algorithmic stablecoin intended 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 wiped out, sending shockwaves through the digital-asset industry.
The fallout contributed to subsequent bankruptcies among major crypto lenders and hedge funds and deepened a sector-wide trust crisis.
Terraform Labs filed for bankruptcy in early 2024 and later agreed to pay roughly $4.5 billion to resolve civil claims by the U.S. Securities and Exchange Commission (SEC).
Do Kwon, the company’s co-founder who pleaded guilty in criminal proceedings, 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 leading Terraform’s liquidation, asserts that Jump Trading played a hidden and central role in supporting Terra long before its ultimate collapse.
Court filings allege that Jump and Terraform entered into secret agreements as early as 2019.
Under those agreements, Jump allegedly obtained access to millions of LUNA tokens at deep discounts.
One agreement cited in the complaint allowed the firm to buy LUNA for roughly $0.40 per token while market prices later exceeded $110.
The administrator contends these arrangements laid the groundwork for massive profits as LUNA appreciated.
The complaint also references an informal “gentlemen’s agreement” between Jump and Terraform.
According to Snyder, Jump secretly committed to propping up UST’s peg during periods of stress while Terraform publicly credited any recoveries to its algorithm’s strength.
The arrangement was allegedly kept hidden to avoid regulatory and market scrutiny.
Warning signs in May 2021
The lawsuit places particular emphasis on events in May 2021, when UST briefly lost its dollar peg.
At the time, Terraform argued that the stablecoin’s recovery demonstrated the design’s resilience. The complaint now paints a different picture.
Snyder alleges that Jump stepped in by purchasing large amounts of UST, masking fundamental weaknesses in the system.
Investors, he says, were misled into believing the mechanism had functioned as intended.
After that episode exposed flaws in Terra’s design, Jump allegedly negotiated to remove vesting and lockup restrictions from its contracts.
Those changes reportedly allowed the firm to receive monthly LUNA allocations and sell them immediately.
The administrator claims this increased selling pressure and positioned Jump to exit profitably as systemic risk rose.
Jump pushes back
Jump Trading has categorically denied the allegations and says it intends to vigorously defend itself.
A company spokesperson characterized 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 depegging in May 2021 and later profiting from unlocked LUNA sales.
Tai Mo Shan settled those claims for roughly $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 courts must still determine who knew what, who intervened, and who ultimately profited from Terra’s rise and collapse.