Terraform Labs Holds Citadel Responsible for UST Depeg Phenomenon

Terraform Labs Files Motion Against Citadel Securities

Terraform Labs has taken legal action to compel Citadel Securities to hand over trading documents that allegedly demonstrate the market maker’s involvement in the collapse of the TerraUSD (UST) stablecoin. The downfall of Terraform Labs had a significant impact on the cryptocurrency market, leading to a bear market. It began with the depegging of UST and had a ripple effect on other projects.

The Court Document and SEC Accusations

Terraform Labs has requested that the court require Citadel to provide specific trading documents as part of its defense against the US Securities and Exchange Commission (SEC). In February 2023, the SEC accused Terraform Labs and its former CEO Do Kwon of market manipulation and fraud, claiming that misrepresentations by Terraform Labs led to the collapse of the Terra ecosystem.

UST depeg, Terraform Labs Citadel — Depeg of UST (now with the ticker USTC). Source: BeInCrypto

Terraform Labs argues that heavy short-selling by market makers like Citadel caused the collapse, citing data from blockchain analysis firm Nansen, which suggests that seven whale traders were responsible for depegging UST. According to Nansen’s on-chain investigation, these traders identified vulnerabilities in UST early on.

Claims of a Soros-Style Attack

The court documents also mention rumors that Citadel CEO Ken Griffin intended to short UST. A trader with the pseudonym @GiganticRebirth allegedly stated in a Discord server that Griffin planned to “soros the f*** out of luna ust.” This reference is to George Soros, who famously profited from betting against the pound and breaking the Bank of England in 1992. Some analysts believe that the depegging of UST was a strategic attack similar to Soros’ tactics.

Hot Take: Terraform Labs Seeks Trading Documents to Support Defense

Terraform Labs has filed a motion in court to obtain trading documents from Citadel Securities, aiming to prove that market makers like Citadel played a role in the collapse of the TerraUSD stablecoin. The SEC has accused Terraform Labs of market manipulation and fraud, but Terraform Labs argues that heavy short-selling by market makers caused the collapse. They claim that data from Nansen supports their argument, pointing to seven whale traders who exploited vulnerabilities in UST. Additionally, rumors suggest that Citadel’s CEO intended to short UST, drawing comparisons to George Soros’ famous attack on the pound in 1992. Terraform Labs seeks these trading documents as evidence for their defense against the SEC’s accusations.