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As early as February, an anonymous source had claimed that Jump Trading was the company targeted by the SEC for having artificially maintained parity for Terra’s stablecoin with the dollar throughout 2021.
Now, according to new court filings from the Securities and Exchange Commission (SEC), the high-frequency crypto trading firm Jump Trading propped up Do Kwon’s the failed TerraUSD (UST) a year before its collapse.
Amongst the documents published by the SEC, there is a contract dated November 2019 that discusses a loan of 30 million LUNA made over three years between Terraform Labs and a subsidiary of Jump Trading, Tai Mo Shan Limited.
Terra was the project behind the algorithmic stablecoin UST. The token maintained its peg to the dollar via a unique mint-and-burn mechanism. Each time one UST token was destroyed, users could redeem $1 in the project’s sister token LUNA. The same also applied in the other direction; for every dollar of LUNA destroyed, users could mint one UST.
If, for example, UST slipped to $0.95, traders could buy a bunch at that price but sell (and burn) it for $1 of LUNA to turn a profit. In doing so, UST supply is reduced, and, therefore, the price heads back up—at least, in theory.
According to the SEC, in exchange for propping up the stablecoin, Terraform and its CEO, Do Kwon, permitted Jump Trading to purchase LUNA tokens at prices of $0.3, $0.4, and $0.5. The SEC highlighted instances where Jump Trading was able to purchase these tokens at $0.4 while it traded for $90 on the open market.
Although Terra’s crash, which significantly contributed to the end of the bull market in the crypto sector, occurred in May 2022, the events in question date back to a year earlier.
When the stablecoin initially fell from its $1 peg in May 2021, Terraform Labs touted its return to parity as evidence of the effectiveness of its algorithm.
However, according to the SEC, the token’s recovery was due solely to the intervention of Jump Trading.
Another document released by the SEC is an email that dates back to January 13, 2020, from Kwon to investors in which he mentioned an “important arrangement” with Jump Trading.
Kwon requested that this information be kept confidential.
This arrangement could have allowed Jump Trading to realize a profit of $1.28 billion, alleges the SEC.
Jump Trading and Terraform Labs did not immediately respond to Decrypt’s request for comment.