Jump Trading is allegedly the unnamed partner that supported the TerraUSD (UST) stablecoin, according to a report from The Block.
The United States Securities and Exchange Commission (SEC) filed a lawsuit against Terraform Labs and its founder Do Kwon last week, alleging the parties were responsible for a “multi-billion dollar crypto asset securities fraud.”
In its complaint, the SEC alleged that Terra had loaned 30 million LUNA to a “US Trading Firm” in 2019 – something Kwon explained to a small group of investors as a transaction to improve liquidity of the token. In 2020, the trading firm allegedly began actively selling LUNA into the market and made approximately $1.28 billion in the process.
People with knowledge of these trades told The Block that proprietary trading firm Jump Trading was the unidentified trading firm that the SEC referred to in the lawsuit. At the time of writing, the SEC had not accused Jump of any wrongdoing.
A spokesperson from Jump reportedly declined to comment on the accusations. The firm was known to have been an active participant in the Terra ecosystem, having co-led a $1 billion investment in the Luna Foundation Guard (LFG) along with now-defunct hedge fund Three Arrows Capital last year.
Under modified terms of its loan agreement with Terra to serve as its market maker, Jump was able to buy LUNA for as little as $0.40 per token, even when LUNA was trading at over $90 in the open market.
According to the SEC, when UST briefly lost its peg in May 2021, it was the unnamed third party (in this case, Jump Trading) that ultimately helped the asset recover by buying up Terra’s tokens. The fact that the firm stepped in to prevent a market selloff at the time was allegedly what drove the modified terms to acquire LUNA at such discounted prices.
“Specifically, Terraform and Kwon emphasized the purported effectiveness of the algorithm underlying UST in maintaining UST pegged to the dollar – misleadingly omitting the true cause of UST’s re-peg: the deliberate intervention by the U.S. Trading Firm to restore the peg,” said the SEC.