While the crypto market has experienced significant growth, concerns regarding the need for regulation have often been a point of discussion. Recently, a newly released court filing reveals Securities and Exchange Commission (SEC) investigation into the alleged involvement of high-frequency crypto trading firm Jump Trading and the TerraUSD (UST) stablecoin case.
Back in February, an anonymous source claimed that Jump Trading had been the company targeted by the SEC, under suspicion of artificially maintaining parity between Terra’s stablecoin and the dollar throughout 2021. According to the latest court filings, it has now been unveiled that Jump Trading supported the failed TerraUSD (UST) stablecoin a year before its collapse.
The documents published by the SEC include a contract dated November 2019, which discusses a 30 million LUNA loan made over three years between Terraform Labs and a subsidiary of Jump Trading, Tai Mo Shan Limited. Terra’s project was the algorithmic stablecoin UST, which maintained its peg to the dollar via a unique mint-and-burn mechanism. It allowed users to redeem $1 in LUNA with the destruction of one UST token and vice versa.
In theory, this mechanism should have maintained UST’s price stability. However, the SEC highlights instances where Jump Trading was granted permission to purchase LUNA tokens at significantly lower prices than those on the open market. This alleged intervention by Jump Trading in propping up the stablecoin is now under scrutiny.
Terra’s crash, which played a significant role in the end of the bull market in the crypto sector, took place in May 2022. Interestingly, the events under investigation by the SEC date back to a year earlier. Following the initial drop from its $1 peg in May 2021, Terraform Labs hailed its return to parity as proof of its algorithm’s efficacy. Nevertheless, the SEC’s findings claim that this recovery was solely due to Jump Trading’s intervention, which appears to have controlled the performance of the stablecoin artificially.
Adding to the evidence, an email dated January 13, 2020, from Terraform Labs CEO Do Kwon to investors mentioned an “important arrangement” with Jump Trading, which he requested to be kept confidential. According to the SEC, this arrangement could have enabled Jump Trading to make a profit of $1.28 billion.
Both Jump Trading and Terraform Labs have yet to make official comments regarding the allegations raised by the SEC. As the crypto market continues to mature, it remains imperative to ensure comprehensive regulations are in place for both transparency and the protection of all market participants.
Source: Decrypt
