Jump Trading named by SEC to have propped up Terra before its collapse

Updated: 18 May 2023

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Jump Trading was allegedly singled out by the SEC in early February for artificially maintaining the stablecoin’s parity with the dollar throughout 2021, according to an unnamed source.

Earlier this week, we have reported on the US Justice Department having launched an investigation into the TerraUSD collapse.

Now, we have information that new case documents from the Securities and Exchange Commission (SEC) claim that Jump Trading, a high-frequency cryptocurrency trading firm, supported Do Kwon’s failing TerraUSD (UST) project a year before it crashed.

How Terra Luna used to work

The project behind the algorithmic stablecoin UST was called Terra. Through a special mint-and-burn process, the token kept its link to the dollar. Users may exchange $1 for one LUNA token, the project’s sister token, each time one UST token was destroyed. The same held true in the opposite direction; users may create one UST for every dollar of LUNA destroyed.

For instance, traders could purchase a large quantity of UST at $0.95 and then sell (and burn) it for $1 of LUNA to make a profit. By doing this, the supply of UST is decreased, which, in theory, causes the price to rise once more.

May of 2022 marked the collapse of the Terra blockchain. The value of its native cryptocurrency, LUNA, dropped to almost zero. The stablecoin for the project, TerraUSD, experienced the same thing. The entire incident has had a significant impact on the cryptocurrency market, deepening and even extending the crypto winter that began many months ago. As a result, many other companies, including FTX, one of the biggest cryptocurrency exchanges in the world, crashed.

The project was immediately under investigation by several agencies, and Do Kwon, the project’s founder, quickly fled into hiding. Months went by, and eventually the year came to an end with the issue still open.

New revelations about Jump Trading

The new findings, through one of a documents made public by the SEC, show that a contract dated November 2019 that talks about a loan of 30 million LUNA made over three years between Terraform Labs and a subsidiary of Jump Trading, Tai Mo Shan Limited.

The SEC claims that Terraform and its CEO, Do Kwon, allowed Jump Trading to buy LUNA tokens at prices of $0.3, $0.4, and $0.5 in exchange for supporting the stablecoin. When Jump Trading was able to buy these tokens for $0.4 while they were trading for $90 on the open market, the SEC highlighted those specific cases.

Although Terra’s crash occurred in May 2022—a month before the bull market in the cryptocurrency industry came to an end—the events in issue actually took place a year earlier.

In May 2021, when the stablecoin first deviated from its $1 peg, Terraform Labs celebrated its restoration to parity as proof of the algorithm’s efficiency.

Authorities were also reportedly looking for a possible TerraUSD bailout, according to insiders, although such a bailout allegedly never occurred. One of the goals of the current investigation is to ascertain whether market manipulation occurred and, if so, whether any of the other companies mentioned were complicit in it.

The DoJ has previously expressed its suspicions that TerraUSD was bailed out by a different unnamed entity. The DoJ asserts that there is a chance the corporation in question was Jump Trading and that it previously bailed out TerraUSD in an indictment against Bankman-Fried.

The only reason for LUNA’s rebound

The SEC claims that Jump Trading’s intervention was the only reason the token was able to rebound in 2021.

The SEC also made available an email from Kwon to investors from January 13, 2020, in which he discussed a “important arrangement” with Jump Trading.

Kwon asked that this information remain private.

According to the SEC, Jump Trading could have made $1.28 billion in profit thanks to this arrangement, which is a significant amount and can definitely be used to make a strong case against Do Kwon and other parties involved, should it be shown to be true.

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