Terraform Labs Seeks $4 Billion in Damages from Jump Trading Over Collapse

• Terraform Labs sues Jump Trading for $4 billion in damages.
• Backdoor deals allegedly inflated TerraUSD’s value, leading to collapse.
• Jump Trading defends itself against claims of illegal crypto profiteering.

The administrator overseeing Terraform Labs’ liquidation has filed a lawsuit against Jump Trading, its co-founder William DiSomma, and former president Kanav Kariya, seeking $4 billion in damages. The suit claims that Jump, alongside its executives, is liable for Terraform Labs’ catastrophic downfall in 2022, which caused a market crash and financial instability throughout the cryptocurrency ecosystem. The suit comes after Terraform Labs, led by founder Do Kwon, collapsed when its algorithmic stablecoin, TerraUSD, lost its dollar peg. This triggered a domino effect, wiping out over $40 billion in value and contributing to the bankruptcy of major crypto lenders.

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Alleged Backdoor Deals and Secret Agreements

According to the Wall Street Journal, the court-appointed administrator, Todd Snyder, accuses Jump of exploiting Terraform Labs’ ecosystem by entering into secret agreements that inflated the value of TerraUSD. These backdoor deals allegedly helped Terraform Labs mislead investors and artificially boost the stablecoin’s credibility, thus exacerbating the crash. Snyder claims that Jump Trading profited massively from the arrangement, resulting in billions of dollars in unjust gains.

The Securities and Exchange Commission (SEC) had previously uncovered the extent of the alleged deal, which saw Jump’s crypto unit, Tai Mo Shan, purchase $20 million worth of TerraUSD in May 2021. In return, Tai Mo Shan received early access to Luna tokens, which were later sold at market value. This transaction, according to the SEC, led to $1.28 billion in profits for Jump Trading and was part of a broader scheme to mislead investors about the stability of the TerraUSD mechanism.

While the SEC fined Tai Mo Shan $123 million, the lawsuit filed by Snyder is much more significant, aiming to hold Jump Trading accountable for its role in what has been described as the largest collapse in cryptocurrency history. Terraform Labs, in its bankruptcy proceedings, has already agreed to pay a massive $4.47 billion in penalties to the SEC.

However, a spokesperson for Jump Trading has dismissed the lawsuit, calling it a “desperate attempt” to shift responsibility from Terraform Labs and Do Kwon. The company has vowed to defend itself vigorously against the claims.

Efforts to Recover Assets and Hold Accountability

Despite the legal battle, progress has been made in recovering assets for creditor compensation. So far, approximately $300 million has been recovered, a small fraction of the billions of dollars lost due to the collapse. The ongoing litigation is expected to have significant implications for the future of cryptocurrency regulations and corporate accountability in the industry.

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