Trading Giant Jane Street Sued for Market Manipulation in Terraform Crash

Jane Street, an American quantitative trading firm, is currently facing charges over supposedly aiding the downfall of Terraform Labs’ flagship stablecoin, TerraUSD (UST).

The lawsuit, filed by Terraform Labs’ bankruptcy representatives, claimed that Jane Street engaged in insider trading strategies that worsened the crisis. While this netted profits for the trading firm, it contributed to triggering market deterioration.

Jane Street Aided the $40B Market Crash

The TerraUSD collapse in May 2022 was a significant event in crypto history. The algorithmic stablecoin was designed to maintain a 1:1 peg to the U.S. dollar through a balancing system with its sister token, LUNA.

However, UST lost its peg as market confidence weakened, triggering a chain of events that erased roughly $40 billion from the crypto market. Investors rushed to sell, and LUNA’s value dropped within a short period.

The latest lawsuit argues that large trading firms like Jane Street have taken advantage of weaknesses in Terraform’s liquidity pools and market structure. Todd Snyder, the court-approved administrator of the crypto platform, claimed in a Manhattan court that Jane Street used non-public information from Terraform insiders to execute trades. By executing significant trades at critical moments, these firms allegedly contributed to the swift and severe market collapse.

Terraform’s bankruptcy estate is now seeking financial damages, claiming that such trading activity increased losses and harmed investors already exposed to risk.

“Baseless, Opportunistic Claims”?

The lawsuit stated that Terraform’s ties with Jane Street dates back to February 2022. The trading firm gained insider access to the bankrupt crypto platform through a connection with former Terraform intern, Bryce Pratt, and some Terraform employees. Information were communicated through a group chat called “Bryce’s Secret.”

Despite the accusations imposed on Jane Street, a spokesman for the trading company tagged them as “baseless, opportunistic claims.”

“This desperate suit is a transparent attempt to extract money when it is well-established that the losses suffered by Terra and Luna holders were the result of a multibillion-dollar fraud perpetrated by the management of Terraform Labs. We will defend ourselves vigorously against these baseless, opportunistic claims,” the spokesman said.

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