Legal Storm Surrounds TerraUSD Collapse as Jump Trading’s Role Comes to Light
Do Kwon, co-founder of Terraform Labs, is facing legal scrutiny as new details emerge about the collapse of the terraUSD (UST) stablecoin in 2022.
An investigation is underway, and recent developments suggest that the involvement of market maker Jump Trading could be crucial in the legal proceedings.
Jump Trading’s Profits Under Investigation
After the UST stablecoin collapsed in May 2022, Kwon was sued by the U.S. Securities and Exchange Commission (SEC) for allegedly misleading investors with false information.
A filing in a New York court on October 18 has shed light on the potential significance of Jump Trading LLC in the case. It has been revealed that the market maker made substantial profits totaling $1.28 billion during the turbulent period when the terraUSD ecosystem was unraveling.
The focus on Jump Trading stems from a previous incident when UST temporarily lost its peg to the U.S. dollar. Kwon had assured investors that the stablecoin maintained its $1 value due to its automated algorithm. However, SEC experts argue that Jump Trading played a critical role in stabilizing the coin’s value at Terraform Labs’ request.
“The peg instead recovered because Defendants entered an arrangement with a U.S. trading firm, Jump Trading LLC (“Jump”), to purchase substantial amounts of UST to support the price.”
Kwon’s Legal Team Denies Market Maker’s Role
Kwon’s legal team has denied any wrongdoing in response to these allegations, stating that Jump Trading’s trades did not restore the peg of terraUSD in May 2021. They claim that the de-pegging of UST in May 2022 was a result of intentional efforts by third parties to short the stablecoin, causing it to deviate from its $1 price. Kwon’s team argues that this incident involved a direct, public intervention to combat the short positions.
Kwon’s defense also argues that the SEC lacks jurisdiction in this case because the assets involved, such as UST, are currencies and not securities. This highlights the legal gray area that has been a point of contention in the SEC’s cases against cryptocurrency exchanges like Binance and Coinbase.
In March, Kwon was arrested for possessing false identification documents and is currently under house arrest after a request for bail was reapproved by a Montenegrian basic court.
Hot Take: TerraUSD Collapse Exposes Potential Market Manipulation
The collapse of terraUSD and the legal proceedings against Do Kwon shed light on potential market manipulation in the cryptocurrency industry. The involvement of market maker Jump Trading raises questions about its role in stabilizing or influencing the value of stablecoins like UST.
This case also highlights the ongoing regulatory challenges surrounding cryptocurrencies, particularly in determining their classification as securities or currencies. The outcome of this legal battle could have significant implications for future regulations in the crypto space.
As the investigation continues, it remains to be seen how this case will impact investor confidence in stablecoins and the broader cryptocurrency market.
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