- Terraform Labs lawsuit alleges that Jane Street withdrew 85M UST minutes after a 150M UST pool removal.
- The complaint claims Jane Street had an edge during the UST depeg crisis.
- Jane Street has denied wrongdoing and called the Terraform Labs lawsuit an attempt to deflect blame.
Terraform Labs lawsuit has reopened legal battles tied to the May 2022 UST collapse. A bankruptcy administrator now accuses Jane Street of insider trading that accelerated market panic.
The Core Allegations in the Terraform Labs Lawsuit
The Terraform Labs lawsuit’s 83-page complaint targets Jane Street Group and specific executives and was filed on February 23.
Named defendants include co-founder Robert Granieri and employees Bryce Pratt and Michael Huang. The complaint claims confidential communications provided trading advantages during UST’s instability.
According to the Terraform Labs lawsuit, a private group chat titled “Bryce’s Secret” was formed in February 2022. The filing alleges this channel transmitted material non-public information to Jane Street traders.
The complaint states that Pratt, a former Terraform intern, coordinated communications between Terraform staff and Jane Street’s DeFi team. These exchanges allegedly involved sensitive operational details as UST showed early weakness.
Jane Street disputes the characterization of these communications. A spokesperson described the lawsuit as desperate and baseless in statements shared with reporters on the social media platform X.
The firm maintains that Terraform leadership, including founder Do Kwon, caused the losses. Jane Street argues the collapse stemmed from internal failures rather than external trading conduct.
The May 7 Liquidity Shock
At the center of the Terraform Labs lawsuit is a ten-minute window on May 7, 2022. That day, Terraform removed 150 million UST from Curve’s 3pool without immediate disclosure.
Less than ten minutes later, a wallet linked to Jane Street withdrew 85 million UST from the same pool. The complaint describes this as the largest single withdrawal in the pool at that time.
The combined 235 million UST withdrawal sharply reduced liquidity. Soon after, UST slipped below its one-dollar peg, and market anxiety intensified.
The Terraform Labs lawsuit alleges Jane Street acted with prior knowledge of Terraform’s liquidity move. Snyder claims this enabled the firm to unwind high-risk positions before broader market awareness.
As UST fell below $0.80 on May 9, further communications allegedly occurred. The filing states that Pratt discussed discounted purchases of Bitcoin or LUNA during the turmoil.
Collapse, Fallout, and Legal Response
The Terra ecosystem had shown stress before May 7. However, critics long cited liquidity fragility within Curve’s 3pool as a structural weakness.
Terraform later stated the 150 million UST withdrawal supported plans for a new 4pool structure. Still, the timing drew scrutiny as the peg began to falter.
Once UST broke below parity, the algorithmic stabilization mechanism expanded the LUNA supply rapidly. Instead of restoring balance, selling pressure intensified across exchanges.
By May 13, UST traded below $0.15. LUNA collapsed to fractions of a cent, erasing tens of billions in market value.
Retail investors with funds in Anchor Protocol faced steep losses. Many had relied on its advertised 20 percent yield tied to UST deposits.
The Terraform Labs lawsuit now seeks to recover funds for creditors. Snyder states Jane Street generated substantial profits while creditors absorbed mounting losses.
Jane Street has vowed to contest the claims in court. The outcome may shape how traditional trading firms operate within digital asset markets.
For now, the Terraform Labs lawsuit places renewed focus on the events of May 2022. Court proceedings will determine whether trading conduct crossed legal boundaries during crypto’s most severe crisis.