The Defense Presents Evidence of Jump Trading’s Role in the Collapse of TerraUSD
In response to allegations made by the US Securities and Exchange Commission (SEC), Terraform Labs and Do Kwon have provided new evidence to the Supreme Court of Singapore regarding the involvement of Jump Trading in the collapse of the TerraUSD (UST) stablecoin. The court requested this information after the SEC claimed that Terraform Labs had misrepresented the capabilities of its algorithm to maintain UST’s peg in 2021. The SEC argues that Jump Trading, a US market maker, was responsible for fixing the depeg in 2021, but was absent during the collapse in 2022.
Exchange Data Reveals Jump Trading’s Role
The defense lawyers submitted evidence showing that the depeg in May 2021 was caused by traders withdrawing USDT from KuCoin and selling it on decentralized (DEX) and centralized exchanges (CEX). Data from KuCoin indicated increased selling activity on the day of the depeg. According to SEC expert Dr. Bruce Mizrach, Jump Trading allegedly made most of the purchases that helped restore UST’s price to $1. The defense provided wallet addresses linked to Jump and its affiliates to better understand their trading strategy.
Similar Patterns in 2022
In May 2022, UST withdrawals from KuCoin spiked just before its value fell below $1 again. Traders moved their UST to other centralized exchanges and DEXes. Once again, data from KuCoin revealed that Jump Trading traded on that day, although it is unclear to what extent. The addresses associated with Jump could provide more insight into whether their trading influenced UST’s re-peg in 2021. If Jump played a lesser role in purchasing UST in 2022, it could indicate flaws in Terraform’s algorithm to maintain the $1 peg.
Regulators Concerned About Crypto Business Models
The involvement of Jump Trading in the Terra ecosystem highlights how crypto companies pushed the boundaries of existing regulations to boost their businesses during the bull market. The combination of brokerage, market-making, and settlement services into a single entity worried regulators. They feared that crypto exchanges could use their multiple roles to prioritize their own gains over those of investors.
Last year, the collapse of FTX Trading, which was closely tied to its sister market-maker Alameda Research, had a significant impact on the crypto industry and decreased liquidity in global markets. These incidents prompted increased scrutiny from the SEC. Coinbase, the largest US crypto exchange, has faced accusations of operating as an unregistered broker-dealer in violation of securities laws.
Hot Take: Increased Regulatory Scrutiny for Crypto Exchanges
The SEC’s probe into Jump Trading’s relationship with TerraUSD and other market-makers is part of a broader trend of regulators cracking down on crypto business models. The combination of different roles within a single entity has raised concerns about conflicts of interest and potential harm to investors. As regulators review their definitions of exchanges and broker-dealers, non-compliant firms may face charges. This increased scrutiny aims to protect investors and ensure the stability and integrity of the crypto market.
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