sandmark.com
The fallout from the 2022 crypto market collapse continues to widen. The bankruptcy administrator for Terraform Labs has filed a lawsuit against Jane Street, alleging the quantitative trading firm used insider information to profit from the collapse of the Terra ecosystem.
Terraform Labs created a $40bn ecosystem built on the ambitious premise that an algorithmic stablecoin, TerraUSD (UST), could hold its dollar peg without traditional reserves. When that mechanism failed in mid-2022, it wiped out significant retail wealth and triggered an industry-wide contagion. Now, the estate tasked with managing the bankruptcy claims that one of Wall Street's largest trading firms actively accelerated the decline.
The Jane Street connection
Todd Snyder, the administrator of the Terraform Labs bankruptcy estate, has filed a lawsuit against Jane Street, its co-founder Robert Granieri and company executives Bryce Pratt and Michael Huang.
The complaint alleges that Jane Street initially reached an agreement in 2018 to provide over-the-counter trading services for Terra. Despite this early arrangement, onchain data indicates that the trading firm did not engage in meaningful Terra trading until 2022. According to the lawsuit, the trading desk asked Pratt (a former Terra intern) to re-establish communications with his previous employer just as the market began to show signs of stress.
During his time at Terra, Pratt allegedly developed close relationships with the head of research and other key executives. The complainant argues that after joining Jane Street, he leveraged these connections to establish a direct backchannel between the two firms.
Jane Street supposedly used this line of communication to gain material non-public information. As Terra began to unravel, the trading firm allegedly used this knowledge to rapidly offload its massive positions in both UST and the native LUNA token. The lawsuit claims this aggressive selling pressure accelerated the stablecoin's de-pegging process and contributed to the eventual collapse of the broader ecosystem.
Neither Jane Street nor the legal team representing the bankruptcy estate were immediately available for comment.
The ongoing Terra fallout
This lawsuit adds another layer of complexity to the ongoing Terra saga. Following the collapse of his firm, founder Do Kwon initially appeared to cooperate with authorities before relocating to Montenegro.
After months of jurisdictional negotiations between US and South Korean officials, Kwon was eventually extradited to face fraud charges stateside. He was recently sentenced to 15 years in prison for his role in the collapse, marking a significant conclusion to one of the industry's most high-profile cases. While he is currently serving time in the US, he is expected to be temporarily transferred to South Korea to defend himself against further domestic charges.
The allegation that a sophisticated Wall Street entity such as Jane Street may have traded on inside information during Terra's collapse shifts the narrative of the 2022 crash. It suggests that the decentralized finance crisis was potentially exacerbated by traditional institutional trading practices rather than solely a failure of code.